However, he insists the player will be given the support he needs to re-discover his form after eight games without a goal.
Pellegrini is preparing his squad to go to London rivals Chelsea on Monday night and conceded his star striker is going through a difficult period that he struggled to explain.
“I don’t think anybody can be happy,” he said.
“I think the fans are not happy. Me, I’m not happy and Marko’s not happy.
“But this happens to some players in the season that they are not in their best moment.
“Maybe he needs the support more than punishment. I am always talking with Marko and he wants to do things better.”
Arnautovic tried to force a big-money move to the Chinese Super League in the winter window and appeared to have played his final game for the Hammers against Arsenal in January after waving goodbye to supporters.
A move fell through as West Ham were unable to find a replacement and Arnautovic responded by signing a new deal and reiterating his commitment to the fans.
Marko Arnautovic has not scored in eight games for West Ham (Image: GETTY)
However, his transition back into the team has been far from smooth and he was booed after being substituted in the 2-0 defeat by Everton last weekend.
Despite that, Pellegrini came to his defence and said he was fully committed to getting back to his best form.
“He’s absolutely involved with our team, what happened in December about China is finished, it’s over,” he added.
“So if someone is thinking Marko does not want to be here or he doesn’t want to play for West Ham, they are wrong.
Arnautovic was booed by Hammers supporters in the 2-0 defeat by West Ham (Image: GETTY)
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Manuel Pellegrini admits he is not happy with Arnautovic's form (Image: GETTY)
“Marko’s absolutely involved mentally and physically. I repeat, he’s not in a good moment but supporting him will help him return to what he demonstrated some months ago.
“Why? Because a lot of players in some parts of the season have bad performance.
“It’s not easy maybe he does not have the same support of the fans that he did six months ago but with work and a positive mentality he will return and he’s working for that.”