The 23-year-old is the Rossoneri 's leading scorer in Serie A this season, netting 14 goals in 29 appearances.
However, Berlusconi believes in no uncertain terms that the Italy international must stop dropping deep if he wants to realise his "extraordinary" potential as a centre forward.
"I'd like to ask Balotelli if he wants to win. He will say yes and then I will tell him that he has to stay closer to the goal," the Milan owner told Telelombardia .
"Balotelli cannot play like this. He needs to learn how to score goals. I would like to tell him that you have to be close to the goal if you want to shoot on goal. Why is he in midfield all the time?
"Balotelli has extraordinary potential, though. He is not a centre forward in our opinion, so he has to learn how to play in that role."
It has been a difficult season for the San Siro side in which they are likely to miss out on European football altogether and the 77-year-old says he will be looking to sort out the club's future at season's end.
"The fans are not satisfied with Milan and neither am I, but the difference is that I'm the one who is putting up the money," Berlusconi added.
"We are still the most titled club in the world and we are already working on building the future Milan.
"I'm not satisfied with how Milan are playing. Not at all. Therefore, we have to reflect upon this fact."
Milan currently sit eighth in the Serie A table, with just one more game to go.