Italy's Spalletti laments crucial errors in defeat to England
Italy's fate will be decided next month when they play North Macedonia and then Ukraine, currently second in the group, in their last two games.
Returning to the scene of their Euro 2020 triumph, Italy took the lead through Gianluca Scamacca's first international goal but were ultimately overpowered as England secured a measure of revenge for that defeat in the final of the last tournament.
"I don't think the team deserved to lose by two goals," said Spalletti who took over as coach in September after Roberto Mancini quit.
"We need to grow and develop in those big match-winning moments," he said of a team that has lost a number of veterans from the title-winning side of 2021.
"We played well for the majority of the game but we need to take our chances.
He was also unhappy with the way Italy conceded the goals - two scored by Harry Kane and one by Marcus Rashford.
Rashford struck after Italy were caught on the break in the second half, while Kane, who had earlier scored a penalty, fastened on to a routine long ball to run clear for the third.
"We have the quality to compete against everyone," Spalletti said, admitting that the pace and physicality of the English players had proved a tough challenge.