WATCH: Martinez reflects more Milan misery as Inter wins derby
Last season's champion sits sixth in Serie A after 21 games, in danger of failing to qualify for next season's Champions League unless it bucks up its ideas.
It has lost four games in a row, with losses to Inter in the Supercoppa and Serie A sandwiching a 4-0 drubbing by Lazio and a 5-2 mauling at home by Sassuolo.
It was league duty on Monday (AEDT), and Leao was only a substitute, despite being a two-goal hero in September when Milan took the derby spoils 3-2 to keep pace with early bolter Napoli.
While Napoli has kept up its early frantic pace, and now sits 13 points clear of second-placed Inter, Milan has lost all momentum.
Pioli began against Inter with former Liverpool fringe man Divock Origi alongside Olivier Giroud in attack, abandoning the partnership early in the second half when the ineffective Origi was hauled off and Leao made his entrance.
The skilful Portuguese forward almost teed up an equaliser for Giroud, but the French striker's control was awful and the chance was lost, but that moment of fast-paced dribbling excellence highlighted Leao's threat.
"He has enormous potential," said Pioli, "but I chose to play with two centre-forwards who are closer vertically to put Inter's defence in difficulty, even if we didn't succeed.
"I trust a lot in Leao, even if he didn't start from the beginning. The choices I made are the best for what I saw during the week, for what the preparation for the match was and for the positions I wanted to fill."
With the benefit of hindsight, Pioli said he would "do it again" when asked about Leao's omission.
In all, Milan has not won for seven games, and they face Torino on Saturday before a Champions League tussle with Tottenham the following Wednesday.
Tottenham's former Inter boss Antonio Conte may be licking his lips at that prospect, with Milan's defending leaving plenty to be desired in recent weeks.
Lautaro Martinez headed in Hakan Calhanoglu's corner for the only goal of the derby, and Pioli accepted his players were found lacking.
"Unfortunately we found ourselves unprepared once again on a dead ball," he said. "Up to that moment, we were working well as a team. We did better in the second half."
Pioli knows the drastic slide in form has left many Milan supporters agog, and he said: "The fans have every right to criticise, the last few performances haven't been up to par."
Yet Pioli still has the support of the dressing room, according to midfielder Rade Krunic.
Krunic said: "If you lose such an important match there are few positive things. The only thing to take away is the reaction in the second half, where we did better than in the first half.
"We seemed to be doing better in training than today. We believe in Pioli."
