Balotelli's future has been the subject of much speculation due to his fringe role this season as well as a training ground bust-up with Mancini last week.
Mancini, who has has repeatedly backed Balotelli throughout a long line of controversies, immediately played down the confrontation in last Friday's press conference and insisted he was prepared to give his fellow Italian "another 100 chances" at the club.
That has not stopped reports from suggesting AC Milan are willing to give Balotelli a way out of Eastlands in the January transfer window but Mancini was indignant when asked about the latest transfer speculation.
"No, it is not true. I am very, very happy (with Mario)," he said, after uttering an expletive when the subject was raised.
Former club Inter Milan have entered the picture, with sporting director Piero Ausilio claiming they have first refusal on Balotelli, who moved from the San Siro to City in August 2010.
"The right of first refusal is there," Ausilio told Italian magazine Panorama. "If Inter decide to exercise it, it will be a choice that will be made if City should decide to sell him.
"Balotelli technically can fit alongside any attacker."
Balotelli had missed four games with a virus prior to his return as a substitute against Watford in the FA Cup last week. He made a surprise appearance for City's Under-21s on Monday and scored two goals in a friendly against Blackburn, while the 22-year-old has also dyed his hair blond this week.
Asked if this was a fresh start for Balotelli, Mancini said: "Next question! No, I hope. He went with the under-21s because he needed a game. After 40 days without a game, he needed one game. He trained well and I hope this year will be different."
He added that striker Sergio Aguero would not be available for Sunday's Premier League game at Arsenal.
"Sergio won't be available for at least another week," he said.
"He should make the game against Fulham but we won't risk him against Arsenal. He should be ready by next weekend."
Premier League champions City, who will be able to call on left back Aleksandar Kolarov after a four-week injury absence, have not won at Arsenal in 37 years.
"We want to end this run but it will be very difficult because Arsenal are a very good team," Mancini said.
"We are missing a number of important players but we can go there and come away with a good result. We are seven points behind United at present but I don't feel we deserve to be so many points behind.
"Our strikers have been coming back into form again and scoring goals and we will need them to keep doing that. Sometimes you go through a period when you don't score so many but we have scored 10 in our last three games so things are improving."
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