The Chelsea goalkeeper stole the headlines after point-blank refusing to leave the field for Willy Caballero in the dying seconds of extra time at Wembley.
Sarri saw Arrizabalaga go down with cramp in the closing stages and swiftly got his No 2 stripped and ready to enter the field.
But the Spaniard signalled to the bench that he was fine to carry on, which incensed Sarri and his staff on the touchline.
Luiz tried to talk Arrizabalaga into leaving the field and has now revealed exactly what he said to his Chelsea co-star.
“I just said to him we have to respect the decision of the coach,” he explained.
“But, I don’t know if the coach wanted to change him because he was feeling pain or it was his [tactical] decision.
“I think the coach he wished to do the substitution because [he was not sure] of the injury, he didn’t understand that.
“[Kepa] was telling us he was good. He was okay.
“The game sometimes you don’t have much time to explain things, it’s okay.”
Asked why Sarri wanted to replace Kepa, he said: “I was not on the other side, so I don’t know.”
Both Sarri and Arrizabalaga claim the incident was a misunderstanding.
“I regret how the end of the match has been portrayed,” the goalkeeper’s post-match statement read.
“At no point has it been my intention to disobey the coach or any of his actions.
“I think everything has been misunderstood in the heat of the final part of a match for the title.”
Arrizabalaga was the subject of more torment after allowing Sergio Aguero’s penalty through his hands in the shootout.
Chelsea were beaten 4-3 on penalties, meaning City regained their Carabao Cup title.