Italian striker returns to Roberto Mancini's starting XI after missing out on midweek Champions League victory over Villarreal, whilst Rooney and Welbeck start for the Red Devils
The Italian forward has hit a hot streak of form of late, bagging four goals in his last four Premier League outings, including the opener in last week's 4-1 victory over Aston Villa.
Balotelli was also influential in the two sides' FA Cup semi-final in April, with 21-year-old being named man of the match in City's 1-0 victory.
Wednesday night's Champions League goalscoring winner Sergio Aguero also returns to the starting XI, as Edin Dzeko drops out of the first team, whilst Yaya Toure replaces Nigel de Jong, who was a late omission from the side due to a hip problem.
Goalkeeper David de Gea returns to the Manchester United team after missing out on the midweek Champions League victory, as Sir Alex Ferguson opts to stick with the same backline that drew at Anfield last Saturday.
Wayne Rooney also makes his first Premier League start since his sending off against Montenegro, partnering Danny Welbeck in attack, whilst Anderson joins Darren Fletcher in the centre of midfield.
Javier Hernandez and Nemanja Vidic do not make the Red Devils' starting side, with the Mexican striker featuring on the bench despite having signed a new five-year contract with the club on Sunday.
Manchester United team: De Gea, Smalling, Ferdinand, Evans, Evra; Nani, Fletcher, Anderson, Young; Rooney, Welbeck.
Subs: Lindergaard, Jones, F Da Silva, Park, Valencia, Berbatov, Hernandez.
Manchester City team: Hart, Richards, Kompany, Lescott, Clichy; Barry, Y Toure; Milner, Aguero, Silva; Balotelli.
Subs: Pantilimon, Zabaleta, Kolarov, K Toure, Nasri, De Jong, Dzeko.