* La Liga champions suffering poor run of domestic form
* Casillas omission heightens sense of internal strife (Adds Casillas quotes)
MADRID, Dec 23 (Reuters) - Defeat at Malaga on Saturday has surely dashed any lingering hopes Real Madrid had of defending their La Liga title and they urgently need to find their form before Manchester United's Champions League visit on Feb. 12.
Jose Mourinho's decision to drop goalkeeper and captain Iker Casillas for the 3-2 reverse was still sending out shockwaves on Sunday and the defeat had left an "insurmountable" gap to make up on unbeaten leaders Barcelona, according to the Portuguese coach.
Real are 16 points behind Barca after 17 matches and seven adrift of second-placed Atletico Madrid.
When they return from the Christmas break they need to overturn a 2-1 first-leg deficit at home to Celta Vigo in the last 16 of the King's Cup and elimination would leave the Champions League as the only competition they can realistically hope to win this term.
Mourinho justified benching Casillas by suggesting inexperienced number two Antonio Adan was on better form than the 31-year-old Spain international, a fixture between the posts for more than a decade and hugely popular with the fans.
The sight of Spain's World Cup and European Championship hero watching nervously from the sidelines as Malaga beat Real at home for the first time in almost 30 years will have done little to alter the perception that all is not well off, as well as on, the pitch.
Mourinho dismissed a question about whether he feared for his job after the Malaga reverse which followed last weekend's 2-2 draw at home to Espanyol.
"If I sense that the players have lost their desire I am too honest to continue in a losing battle," he said.
"But the players have desire, they showed they still have desire. They played well enough to win against Espanyol, they played well enough to win today. They didn't have any luck and things turned out badly."
Appearing at a charity event on Sunday, Casillas attempted to calm the waters and said the team was more important than any individual player.
"The coach decides who plays," he told broadcaster La Sexta.
"During the week I could tell I wasn't going to play but it wasn't a setback," he added.
"Mourinho didn't say anything to me, he did not explain anything to me. He doesn't give me explanations when I play, so when I don't play he doesn't do so either.
"You have to respect the coach's decision and I have to train a lot more to try to win back confidence."
Sergio Ramos, another of Real's club captains, expressed surprise at the omission of his Spain team mate but urged unity among players and staff.
"It's not normal or usual to see him on the bench but we have nothing to say about it, it's a decision for the coach," he told reporters after the Malaga game.
"Iker is the captain of the team, a leader in the dressing room and a key component for us," he added.
"We are not going to get involved in any controversy. We all have to be in the same boat and row in the same direction.
"Enough seeking controversy where there is none. We all want the same thing."
Despite the calls for unity from the two club heavyweights, there remains a sense that Real and Mourinho are teetering on the edge and many coaches have been sacked for a lot less by the club's impatient presidents.
However, a morale-boosting Cup comeback against Celta and a decent run in La Liga would help set the team up for the United tie and a run at the 10th European title that has eluded them since 2002. (Reporting by Iain Rogers, editing by Tom Pilcher and Alison Wildey)