Balotelli joined the Rossoneri in January, and has since scored seven goals in his first six games for the club, leading Allegri to compare the 22-year-old with the Paris Saint-Germain star.
“He’s similar to Ibrahimovic both physically and technically, but he can get better because he’s playing with continuity here," Allegri told a press conference.
“Balotelli still has to improve a lot as a centre-forward given his potential, but he has all the right ingredients to do it."
After a disappointing start to the campaign, which included the sale of star players such as Ibrahimovic and Thiago Silva to Paris Saint-Germain, Milan now find themselves third in Serie A, two points adrift of Napoli in second.
Allegri admits he is thrilled by the progress shown by his side, but has warned they cannot afford to rest on their laurels just yet.
“The squad is young and I’m happy with the work that the club has done," he went on.
“If we get into the Champions League, without having to pre-qualify, it’ll have been a good year. One thing is for sure, if we’re to get where we want to be, we’ll need a lot of points.”
On the topic of his own future, Allegri added that he plans remain with Milan beyond the 2013/14 campaign.
“I’m very happy to be at Milan and hope to stay at this club for the long term. For that to happen we need results so let’s hope the team can give us some satisfaction," he added.