Rangers headed into the second Old Firm derby of the season hoping for a repeat of their victory at Celtic Park earlier in the campaign, which would have allowed them to blow the title race wide open again.

Instead, their hopes of preventing a fourth successive championship heading for the east end of Glasgow were dealt a major blow when Scott McDonald grabbed the only goal of the game to extend Celtic's advantage to seven points.

Rangers have also suffered defeat to St Mirren and Hearts this term and Smith warned that any more slip-ups could be fatal to their slim title hopes.

"It means there is no real margin for error for us now," he said following the 1-0 reverse.

"We were obviously hoping to peg Celtic back today. We didn't do so and we face a situation where we have to try to go the rest of the season undefeated if we are to pull them back."

Asked whether he has a squad of players capable of such a feat, Smith added: "I'll tell you at the end of the season whether we have or not.

"It's the third game we have lost in the league and we have to improve dramatically on that before the end of the season.

"That's the challenge that's there for us.

"As with a lot of the Old Firm games recently, there wasn't a lot between the teams and sometimes one goal either way can turn the game and that's what happened in today's game."

The game could have ended differently had a Kirk Broadfoot goal in the first half been allowed to stand.

The effort, after 11 minutes, was disallowed when referee Craig Thomson ruled goalkeeper Artur Boruc had been fouled and Smith admitted he had no real complaints about the decision.

"From where I was sitting, there were a lot of bodies in there," he said.

"If the referee judges that he has been fouled then we have to go with that."

Another player who could have altered the outcome was Kris Boyd, who was finally handed his opportunity against Celtic after failing to make a single appearance in the last five Old Firm derbies.

He found himself one-on-one with Boruc early in the second half when the game was still deadlocked but Smith was philosophical about the squandered opportunity after the Celtic goalkeeper pulled off an impressive save.

"It's impossible for a striker to score every opportunity," said the Rangers boss.

"In the latter stages of the game, one of the disappointments when Celtic were sitting back, was that we didn't really create any more opportunities for our strike-force.

"So I was a little bit disappointed from that point of view."

McDonald secured the points with a superbly-struck volley after 57 minutes and Smith said: "You always look at the goals you lose and you are hoping that your team defend better.

"We hoped we would have stopped the opportunity but credit to McDonald, it was a good finish. He still had a bit to do before it was a goal."