Odegaard is preparing to face his former club tonight in the first-leg of their Champions League quarterfinal.
Ancelotti said: “He was very young (at Real Madrid).
“He had that talent when he was 16. He left the club for new experiences and he is one of the best midfielders right now in Europe.
“When he arrived, he was really young. He didn’t have space to play in the first team because in front he had (Cristiano) Ronaldo, (Karim) Benzema and James Rodriguez, and he didn’t find maybe the space to show his quality.
“He was really young, he decided to go away to have the possibility to play and I think - honestly - he did well because now he is back at one of the most important clubs in Europe.”
On Gunners manager Mikel Arteta, Ancelotti also said: “He (Arteta) is doing a fantastic job.
“He is near the top in the Premier League, he is in the quarter-final of the Champions League.
“From 2020 until now, he did really well. The team is stronger compared to the past and is going to be stronger in the future.”