Referee Jon Moss pointed to the spot when Bruno Fernandes tumbled in the box following a challenge with Ezri Konsa, with VAR failing to overturn the decision despite replays showed it was the United forward who jumped into the Villa defender.
Fernandes fired home the penalty before goals from Mason Greenwood and Paul Pogba secured a 3-0 win.
Villa remain four points from safety with just four matches to play and Smith said: “I can understand Jon (Moss) getting it wrong, but that goes to VAR and I don’t know what they are looking at.
“It’s a disgraceful decision, but I can’t really tell you what I think about it because I’ll get fined.
“It’s a poor decision. They have the screen over there that they can go and have a look at, but they don’t seem to be bothered now.
“Anybody in football knows that Fernandes is trying a double drag-back. His first foot is on top of the ball and his next foot is on Ezri Konsa’s shin. I thought that’s what the VAR official was going to give (a foul on Konsa)."
Villa had gone close to opening the scoring when Trezeguet hit the post and Smith continued: “I thought we made a really bright start to the game, put them under some pressure, had some chances. They’re a quality team that are always going to be a threat on the counter, but it all changed on the penalty decision.
“They are a top quality team that are doing really well at the moment and we end up giving them a second goal from a mistake from Tyrone (Mings). At 2-0 they’re a tough team to play against.
“They are full of confidence as it is and then you’ve got a problem. Do you go and press and try and get back in the game? If you do they have the pace to pick you off and unfortunately they were too good for us in the second half.”