A new-look Balotelli, without his trademark 'mohican' hairstyle, returned from injury and suspension at the Ennio Tardini stadium Sunday with high hopes of helping the Rossoneri maintain their recent resurgence.
Balotelli, however, was largely ineffective against Roberto Donadoni's side and after being cautioned for simulation when he tumbled in the area, Allegri replaced him seven minutes after the restart with Brazilian Kaka.
Although Milan went on to draw level at 2-2 following second-half goals from Alessandro Matri and Matias Silvestre, the Rossoneri were stunned by a late winner from Marco Parolo.
Milan slipped back to 10th place and are now 16 points adrift of leaders Roma, who set an all-time Serie A record of nine opening wins with a 1-0 away victoy at Udinese.
Balotelli's return was expected to boost Milan's bid to climb the table following an improvement in form following a 1-0 away win to Udinese and a 1-1 Champions League draw with Barcelona last week.
Instead, Allegri, was left defending the striker and claimed he replaced Balotelli over fears he would respond to provocation and see red.
"There's no reason to single him out, he's a player like all the others," said Allegri.
"Mario found it difficult because Parma closed him down and gave him very little space. Then he picked up that cautioned for simulation.
"In the second half there were two or three situations that could have gone against us so I preferred to replace him rather than risk him being sent off."