Mikel Arteta has vented his anger at the denial of a "1000 percent penalty" and insisted Arsenal produced their best European display in years despite losing 1-0 at Inter Milan.

Hakan Çalhanoglu's spot-kick in first-half stoppage-time settled a tight contest at Stadio San Siro and handed the Gunners a fresh setback in their Champions League campaign.

Mikel Merino was adjudged to have handled in the box 17 minutes after being involved in an incident at the other end of the pitch in which he was clattered by Inter goalkeeper Yann Sommer.

"I don't understand [the handball decision]," said Arteta.

"There is no danger at all. You cannot react because the ball is very close. But OK. They decide that is a penalty.

"But if that is a penalty then the one on Mikel Merino where he punches him in the head has to be a penalty 1000 percent. These are the margins in this game and it's very difficult to accept.

"We were told at the start of the season that wasn't a penalty. That was clear. Today it was a different story."

After a slow start in which Denzel Dumfries hit the crossbar in the second minute, Arsenal increasingly dominated possession but were unable to find a way past Sommer.

The result leaves Arsenal 12th in the Champions League table.

Despite falling to their third defeat in six games across all competitions, Arteta was defiant ahead of Sunday's Premier League trip to Chelsea.

"All the big games we have played in Europe, this is by far the best one that we played in the last few years," he said.

"If we play the way we played, we have a good chance to win against Chelsea."