Balotelli's future has been the subject of renewed speculation after it emerged he is taking City to a Premier League tribunal this week.
Press Association Sport understands Balotelli is appealing against a club fine imposed for on-field indiscipline. The Italian has taken the matter to the Premier League, as is his right, after failing in the internal appeals process.
Neither City nor the Premier League have commented on the development but it has further fuelled rumours the 22-year-old could leave the Etihad Stadium during next month's transfer window.
City boss Roberto Mancini has twice dropped Balotelli in recent weeks for poor form and again voiced fears the player's talent could go to waste if his attitude does not improve.
Prandelli, for whom Balotelli impressed at Euro 2012, told Rai Sport: "Mancini is absolutely right. Balotelli must listen to him, I agree with him.
"Everything depends on Mario, however. Coaches can try to stimulate and negotiate with you but everything must start from him. Returning to Italy could help him. It's important for him to have continuity, the city or the country is not the problem."
Balotelli, signed for £24million from Inter Milan in 2010, has been linked with a return to the San Siro with AC Milan. The latest matter adds to a long list of controversies - on and off the pitch - concerning the enigmatic Balotelli during his time at Eastlands.
It has been reported that the fine Balotelli is contesting was imposed last season after a series of on-field indiscretions.
Balotelli accrued bans totalling eight matches during the last campaign and - when added to a European sanction carried over from the previous season - missed 11 games through suspension.
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