The governing body say they cannot take retrospective action because the incident was seen by at least one of the four match officials in City's 1-0 Barclays Premier League defeat at the Emirates Stadium.
The decision still leaves Balotelli facing a three-match suspension for his sending-off for two unrelated bookings in the same game.
"Where at least one of the officials has seen the coming together of players retrospective action is not taken, regardless of whether they have seen the full extent of the challenge," explained the FA in a statement.
"Retrospective action can only be taken in scenarios where none of the match officials saw the players coming together. The normal scenarios in which retrospective action is taken are for ‘off the ball’ incidents.
"Retrospective action was introduced for off the ball incidents where there was no contest for possession and could not be deemed to be re-refereeing an incident.
"In agreement with FIFA, this is how ‘not seen’ incidents are dealt with retrospectively in England. It is a policy that is agreed with all football stakeholders."
Chelsea defender Branislav Ivanovic has been charged with violent conduct thought for his off-the-ball clash with Shaun Maloney in Saturday's win over Wigan.
Ivanovic, who faces a three-match ban if found guilty, was caught on video appearing to strike Latics midfielder Maloney in the midriff moments before Juan Mata's controversial winner in the Blues' 2-1 Premier League victory at Stamford Bridge.
Referee Mike Jones confirmed he and his assistants did not witness the incident, giving the Football Association the green light to investigate it retrospectively.
Ivanovic, 28, was given until 6pm on Wednesday to respond to the charge.