The 38-year-old became the oldest goalscorer in European Championship history when he prodded home in the 55th minute to put Croatia on track to reach the knockout phase for a fifth straight major tournament.
But Mattia Zaccagni's curling strike in the eighth and final minute of added time snatched Italy a 1-1 draw which put the holders into the last 16.
"We kept battling right until the end but unfortunately football was merciless with us tonight," said Modric.
"It was cruel... but that's part and parcel of football."
Croatia finished third in Group B behind runners-up Italy and Spain.
They will be knocked out of the tournament on Tuesday if England do not beat Slovenia 3-0 or by four goals, or if Denmark fail to defeat Serbia.
The 2022 World Cup semi-finalists were the better side for long periods against Italy in Leipzig, missing chances to score a second goal late on.
"It's hard when you lose like this to find the words to describe how you feel," added Modric, whose goal came less than 60 seconds after he had a penalty saved by Gianluigi Donnarumma.
"Perhaps it's unfair because we all really fought for Croatia right from the first whistle until the last. We should be proud of the way we represented our country tonight."
