Tension between the two Italians spilled over into a fracas after Balotelli mis-timed a tackle on winger Scott Sinclair during a training session at Carrington.
City staff including City coach Brian Kidd rushed in to separate the pair but a spectator and photographs published on Twitter confirmed the incident.
"Mancini ran at him - he was furious," said the onlooker. "He grabbed hold of him and appeared to try and throw him on the floor.
"It looked like Mario was too strong and he couldn't get him down. Then all the coaches ran in to separate them but Mancini was having none of it. He kept trying to break free and have a go at him again."
Balotelli has failed to hold down a regular place in Mancini's starting XI since signing from Inter in 2010 for a fee of 22m euros.
Manchester City captain Vincent Kompany has laid down the gauntlet to Manchester United by insisting the title race is far from over.
United are odds-on favourites to claim their 20th league crown after opening up a seven-point gap on their rivals, who wrestled the title away from them on a dramatic final day last season.
But Kompany pointed to the eight-point margin City overhauled last term and believes his side are ready for a repeat performance.
The Belgian said: "A couple of years ago, if we had fallen seven points behind, we would have said it would be very difficult.
"But now we have done it and won the title, nobody panics. Everything is still possible.
"We have proved what we can do and everybody is very calm. That's the advantage you get when you win it once.
"You have that inner confidence and although the media and the fans get excited, we don't."
Kompany conceded that it would be a tough task, but claimed City were playing well enough to reel in United.
He added: "We are perfectly capable of having a long winning streak that will bring us very close. We have set our standards high and worked hard for a long time to bring ourselves into this position."
Manchester City manager Roberto Mancini has until Friday afternoon to comment on his criticism of referee Kevin Friend following their Boxing Day defeat to Sunderland.
The Football Association wrote to Mancini following his claim that "maybe the referee ate too much for Christmas", as Friend missed what Mancini felt was a clear foul on Pablo Zabaleta in the build-up to Adam Johnson's winner.
Due to a busy festive period, the judicial panel granted Mancini's request for an extension and it is thought the City boss is facing either a warning or fine for his reaction.
While City have made their frustration known at the investigation as Sir Alex Ferguson escaped without punishment for his behaviour during Manchester United's win over Newcastle the same day, it has been pointed out by the FA that there are clear differences.
Mancini delivered his assessment after the game and Friend was not present - unlike fellow referee Mike Dean, who described his own clash with Ferguson before the second half of United's 4-3 victory as 'cordial'.
In addition, whilst Mancini's comments could be viewed as an amusing aside, they have called into question Friend's competence which the FA, at the very least, feel demands clarification.
Manchester City's Pablo Zabaleta admits the champions are feeling the pressure as league leaders Manchester United continue to control the title race.
City lost ground after a United defeat in the Manchester derby over three weeks ago, and since suffered a shock Boxing Day loss to Sunderland.
Right-back Zabaleta feels his City side have responded well to setbacks but they must keep working if they are to be in contention for the title.
He said: "The most important thing is always the performance of the team.
"We played a great game, we had a lot of chances, defensively we were very solid and it's another clean sheet.
"It's a good three points to carry on and we know that we are under pressure because we need to win every game.
"We know we are seven points behind United so it's going to be very tough, but keeping positive and keeping working is the key to catching United.
"It was hard to lose against Sunderland but always you need to try to respond well. We did it and I'm very proud for the team."
The 27-year-old scored City's opener in their 3-0 win over stoke on New Year's Day, a performance that again underlined his value to the champions.
He said: "You feel great when people give you credit but I always try to put the team before me.
"Football is not about individual players, it's about the collective. I'm very pleased for the lads.
"We did great yesterday and it's great when you see everyone play well."
Roberto Mancini hopes Sergio Aguero will recover from his hamstring injury to figure in Manchester City's next Premier League clash with Arsenal in a fortnight.
The Argentine striker scored but then limped out of the champions' 3-0 win over Stoke but the City boss expects him to return in quick time.
"I don't think it is serious. It is his hamstring for sure but maybe he won't play in the FA Cup. We will try to recover him for Arsenal."
Assistant manager David Platt added: "Sergio won't play at the weekend and is probably doubtful for the trip to Arsenal but we'll know more in 48 hours.
"It's too early to make an accurate assessment but it's a blow for us because he's been playing so well. There are different degrees of hamstring injuries which is why we need to wait to assess the extent of what has happened until Thursday."
The injury to Aguero may be offset by the return of Mario Balotelli who has missed the festive period.
"Mario has been back in training the last few days so he will be an option for us. He was ill before Christmas, then recovered and started training again before falling ill once more. He has three days of training before the Watford game so could be available for the weekend," said Platt.
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