The former Manchester City forward netted the winner in Italy's 2-1 World Cup win over England but failed to make an impact in the defeats against Costa Rica and Uruguay and was heavily criticised for those performances as the Azzurri crashed out of the group stage.
"Balotelli is a good guy, really. He is not a bad person," Prandelli told Corriere della Sera, "but he lives in a dimension that is far away from reality.
"That doesn't say anything, though. He is only 24 years old and has the possibility to build on this experience."
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"When Germany were in trouble, they asked themselves the question which team was the most important. Their answer was Germany and not Bayern Munich or Borussia Dortmund," he observed.
"In Italy, only 38 per cent of the players are Italian. Juventus have six foreigners in their starting XI. I have told the clubs to focus on their youth players but, if even those teams are full of foreign players...
"The most important team in Italy is not Juventus, Roma, Inter or AC Milan but it's the national team. That's the only way to get ready for major tournaments."
The newly appointed Galatasaray boss acknowledged that he was ultimately responsible for Italy's poor World Cup campaign, however.
"The project simply didn't work in Brazil. We tried to play in a certain way, but we did not succeed," Prandelli added.
"We should have caused Costa Rica problems with our strategy but we were unable to do so. This was the responsibility of the technical staff and we failed. Period. That's my responsibility."