Abafana Bes'thende trailed 2-0 at the break on Sunday via goals from Victor Letsoalo and Deon Hotto at Dr Molemela Stadium.
Thomas Chideu reduced the deficit in the 68th minute, but the visitors could make no further headway as their winless run stretched to 12 games after their first outing of 2018.
Larsen told Arrows' website: "First half was probably the worst I’ve seen the team play since I joined. We were awful from back to front.
"After some strong words at half time and the introduction of [new signing Danny] Venter, we started to impose ourselves on our opponents but the damage was done in the first half as we trailed 2-0.
"We went for broke, pulled one back but could not get the equaliser. I think on the balance of play Celtic deserved to win. They have assembled a very strong team and at times totally played us off the park.
"We showed in the second half what we are capable of doing but need to do so over 90 minutes if we are to break this terrible run."
Larsen's side, in 10th place on the table with 18 points from 16 matches, next host SuperSport United at Princess Magogo Stadium this Sunday.