The former Bavarians boss believes Pep Guardiola has risked unsettling the squad with the signing of his fellow Spaniard.
The 22-year-old left Barcelona for the Allianz Arena in a 20 million euro deal earlier this summer, and Magath - who coached Bayern Munich between 2004 and 2007 - believes the Spaniard's arrival will cause unrest within the Bayern camp.
"I see it as a problem that a Spanish coach signed a Spanish player," Magath told Sport1. "Pep will get problems with Thiago; either his teammates will be angry because he plays all the time, or people will question the transfer fee, in case the coach won't let him play. Pep could have avoided this situation."
Magath, who was coach of Bundesliga outfit Wolfsburg until last year, believes Guardiola is fighting a losing battle as he attempts to improve upon Jupp Heynckes' treble-winning formula of 2012-13.
"If he [Guardiola] suddenly assigns proven players to a different position, logically, they won't have much sympathy for the decision and won't go along with it," Magath said. "Bayern played better than ever before last season. I don't think anybody would be able to improve them.
"Pep has the problem that he took over a team that won every title last term. Therefore, he can't make them better."