The Welsh international's season has been disrupted by several minor injuries since his world record move from Tottenham Hotspur last year and the latest occurred in Saturday's 2-0 La Liga win over Granada at the Bernabeu.
Bale took a painful kick to the groin early in the first half and played on until half time before being substituted.
Ancelotti said he was unable to train with the rest of his team mates on Monday.
"He has no problem with his genitals, he has recovered well from that," the Italian joked. "But he's not comfortable with his left leg and it's affecting his balance a bit.
"He tried to train but he wasn't comfortable and to avoid putting Sunday's game at risk I'll rest him," said Ancelotti referring to the league fixture at fourth-placed Athletic Bilbao.
Bale missed several weeks after bruising his left calf in training at the end of last year and was also sidelined by a thigh strain in October.
Real have a 1-0 advantage over Espanyol from the first leg in Barcelona.
(Reporting by Iain Rogers editing by Tony Jimenez)
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