The Argentine who won the World Cup as a player in 1986 seemed set to end that trophy drought as Al Wasl held a 3-1 lead going into Sunday's second leg at home.
However, they lost the match 3-1 after having goalkeeper Majed Nasser and forward Rashed Essa sent off.
With the tie level at 4-4, it went straight to penalties at the end of normal time and Al Wasl appeared in charge when Al Muharraq missed their second kick.
But former Argentine midfielder Juan Mercier, recruited by Maradona during the January transfer window, missed with Al Wasl's fourth attempt and when Mubarak Hassan failed to convert the home side's first kick in sudden death it meant a maiden Champions League title to a Bahraini side.
The tournament represented a chance for Maradona and his players to salvage something from a disappointing season after the Dubai side finished eighth in the 12-team Pro League and failed to make an impression in the two domestic Cup competitions.
"I don't regret anything I've done over the whole season and me and my coaching staff have done all we can," he told reporters afterwards via a translator.
"I will continue at Al Wasl as head coach as I have a commitment to the club. Preparations are already underway for next season. We will have a short break and then we have plans to implement and execute immediately.
"Congratulations to Al Muharraq for their win and for taking advantage of our mistakes," he added.
Maradona signed a two-year contract with Al Wasl in May 2011 and the UAE domestic season starts in September.
Maradona won league titles as a player in his home country as well as in Spain and Italy but his time as a coach has been conspicuously less successful.
He had brief spells with Argentine sides Mandiyu de Corrientes and Racing Club in 1994 and 1995 without bringing success to either and although he steered Argentina to the World Cup finals in 2010 his side, including Lionel Messi, was beaten in the quarter-finals by Germany.
The GCC Champions League this season was contested by 12 teams from Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates. Al Wasl won it in 2010, the club's most recent trophy.