Balotelli's form has been criticized by his manager this season, and he was set to appeal to a Premier League tribunal after City slapped a £340,000 fine on him for missing 11 of its league matches last term through suspension.
But he eventually backed down and agreed to forgo two-weeks' wages, with a club statement indicating he paid up partly out of respect for his manager.
Mancini says he has forgiven Balotelli for the row, but is adamant the 22-year-old must begin to "respect himself" if he is to fulfil his potential and establish himself as a key figure for City in the long term.
"I am his manager, like other players, and if he deserves to have other chances he will have them," he told reporters.
He added, "This is an old situation and it is normal when someone does a mistake he should take his responsibilities and Mario did this. It's normal.
"He [should] respect himself, not me, because it's important for him to respect himself, very important."
Mancini also confirmed Balotelli will miss the home tie with Premier League strugglers Reading on Saturday after suffering a virus that has kept him out of training.
"This weekend Mario, unfortunately, is ill," he added. "He came this morning but he can't do anything."
The reigning league champions go into the clash with the Royals six points behind rivals Manchester United, who are at the top of the table and face an away trip to Swansea.