Ancelotti's team survived a physical and intense derby on Sunday at the Vicente Calderon stadium against Atletico, a match that finished 2-2.
Atletico lead 1-0 heading into next week's European last-16 return leg against Milan, who are coached by Ancelotti's former Rossonero midfielder Clarence Seedorf.
"I wish Clarence Seedorf the best of luck but Atletico are favourites to progress," Ancelotti said to www.marca.com.
"Atletico are favourites because of the football they play, the atmosphere that there will be at the Vicente Calderon stadium in that match and because of the advantage they have from the first leg at the San Siro.
"I believe it will be an intense game but (Atletico Madrid coach Diego) Simeone's side will go through."