Roberto Mancini instead explained that he wanted to play with just one striker and did not want any more than two strikers on the bench with Sergio Aguero and Edin Dzeko favoured in front of Balotelli and Carlos Tevez starting.
The City manager was responding to questions following a newspaper report in Britain that suggested the striker was dropped because of a late night-out following the Blues' draw with Stoke City last weekend.
Mancini said that Balotelli was just like any other squad player at the Etihad Stadium and would have to accept being dropped from time to time.
"It is totally false what someone wrote yesterday (Thursday). It is not true. Mario went to the stand only because we decided to play with only Tevez," he told a news conference.
"Mario is a player like other players. When he is on the bench sometimes they don't understand."
City will be looking to bounce back from their Euroepan disappointment against Arsenal on Sunday, with Mancini adamant that they should put their experience at the Bernabeu behind them.
The Premier League champions were leading 2-1 with just five minutes to go but goals from Karim Benzema and Cristiano Ronaldo swung the game back into Madrid's favour and City were denied any points from their opening Champions League game.
But Mancini is confident City will be able to overturn the result when Jose Mourinho's side visit the Etihad stadium later this year.
"I think we should be frustrated for what happened in the last five minutes but also happy because we did a good performance. It is not easy to score two goals in Madrid and to have a chance to win. I think next time will be a different game.
"In this moment, maybe they are better than us and probably they deserved to win but when you are 2-1 with five mintues to go in the Bernabeu, it is difficult to watch this. I am confident in this group and for this Champions League."
Mancini criticised goalkeeper Joe Hart for being outspoken following the Madrid defeat but backed the England number one and said he had no problem with the player.
After a disappointing draw against Stoke City last weekend followed by the late collapse in Madrid, City fans will be expecting them to bounce back against Arsenal but Mancini was wary of putting too much pressure on his side.
"Real Madrid is a different competition, now we should forget what has happened in Madrid," he added.
Mancini, though, does want to see an improvement at the back. City have shipped six goals so far, despite being one of the league's most defensively sound teams last term which helped them pip Manchester United to the title on goal difference.
The Italian put that down to lack of preparation in pre-season following Euro 2012 which delayed their start to training with the full squad.
"I think that sometimes it can happen in one team because for two years we were the best defence in the Premier League," he added.
"Now we started so soft but if we want to improve, we must work. Probably the problem is we didn't work enough with the players in pre-season."
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