Steve Howard's penalty gave Leicester a 2-1 victory after the Whites had taken a first-half lead through Davide Somma.
Grayson said: "It's frustrating, that's the word we'd use to sum up the game. As the match went along we got sloppy in our decision-making, we switched off and let Leicester back into it.
"The two goals were easily avoidable, it wasn't as if we were passed off the park. Every time teams get chances in the Championship, they take them. We need to cut out the mistakes."
After the match Grayson revealed he is hopeful of concluding a deal for striker Ross McCormack in time for Saturday's game at Watford after Leeds agreed a fee with Cardiff.
"We still have a long way to go," he said. "The player's representative will be up on Wednesday to discuss personal terms. He's a player I like with a good goalscoring record in the Championship."
Source: PA
Source: PA