The top seed was denied a 14th Grand Slam title by in-form Swiss star Stanislas Wawrinka, who was crowned champion with a 6-3 6-2 3-6 6-3 victory.
Nadal, who was still distraught and fighting back tears as his press conference started, said he first felt a twinge during the warm-up, and the problem gradually got worse.
"It was a little bit worse in the first set. End of the first set, I start to feel worse," he said.
"Then at the beginning of the second was the key moment that I felt, during a serve in a bad movement, it's very stiff, very bad."
He took a medical timeout when 2-1 down in the second set and bravely battled on, but his movement was restricted and the pace of his serves dropped significantly.
Despite clearly being in pain, the Spaniard never considered calling it quits.
"Last thing that I wanted to do was a retirement. No, I hate to do that, especially in a final," he said.
"Same time, it's tough... during the whole year you are working for a moment like this, and it arrives and you feel that you are not able to play at your best.
"So it was not an easy situation for me to be on court like this, but I tried hard until the end, trying to finish the match as good as I can for the crowd, for the opponent, for me."
Despite rallying to unexpectedly clinch the third set, with Wawrinka apparently unsettled by the medical timeout, Nadal said he was never going to win.
"I tried everything until the last moment, but was impossible to win this way. The opponent is too good," he said.
"I'm obviously disappointed and very sad about what happened. But that's life, that's sport."
It was bitter blow for the 27-year-old, who has struggled in the past with injury at Melbourne Park and failed to replicate the success here he has found at the other Slams.
He missed the 2006 and 2013 editions through injury, had to retire injured against Andy Murray in 2010, and in 2011 he was hit by a muscle strain during his defeat to David Ferrer.
Of his 13 Grand Slam successes, only one has come in Melbourne, in 2009, a particularly painful statistic as it was one of his favourite tournaments.
"It's true that I was not very lucky and this is a tournament that is painful for me," he said.
"It is a tournament that I love so much. It's a tournament that I feel the conditions are good for me, warm conditions that I like, good crowd, a court that is faster than the previous ones."
But despite the disappointment, he remained philosophical.
"That's part of life. That's part of sport. It's not the end of the world. It's just another tough moment. It's not the first," he said.
"I'm going to keep playing, going to keep training hard, and I'm going to keep enjoying the world of tennis.
"I feel very lucky to be able to work in something that I really love to do. Not everybody's able to do that. Just a bad day, tough day."