The Blues were knocked out of the UEFA Champions League on Tuesday at the quarter-final stage by rivals Manchester United, who are also on course to take the Barclays Premier League and FA Cup trophy away from west London.
Reigning champions Chelsea currently lie third in the standings after a tumultuous and ultimately frustrating season, which has seen Italian boss Ancelotti come under increasing pressure.
Hold fire: Hoddle believes Chelsea should stick with Ancelotti
However, Hoddle has backed the Chelsea manager and insists their future is bright under his stewardship.
'Carlo won the double last year and he hasn't done as well this year, it is pretty simple,' he said, speaking at the launch of Football 40 and The London Legends Cup at Planet Hollywood, London.
'I think in football you need to get a balance. If you don't look at a balance you can make a mistake. He has had a really fantastic season and he has had one where obviously the owner (Roman Abramovich) wants to win the Champions League and it has not happened.
'But they have a very good squad still, the ability to entice very good players to them and with a manager of his pedigree, why would you want to start afresh again?
'I would say he definitely deserves another season, if not two. They have got some good young players out on loan gaining experience who will be better players for them next year, like Daniel Sturridge.
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There is some youth there and there is some experience there. There is a semi-ageing group of players but they are experienced, they are quality. I don't care if you are 17 or 37, look at Ryan Giggs.'
Hoddle, who is acting as technical director for Football 40, added that any move to replace Ancelotti would be foolhardy and potentially detrimental to the club.
'Carlo should be given time,' he said. 'He has already proved he can be successful. The Double is not an easy thing to do in England.
'Alright, he may be chasing the golden rainbow which is the Champions League and it has not quite happened. They were a coat of paint away from winning that so they have proved they can actually get that close.
'Can it happen again in the future? Yes it can if they can build on what Ancelotti has already put in there. There is some good foundation there, good work put in so why dismantle it now?
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'But it is the owner's baby and no matter what any of us say he can do exactly what he wants to because he deserves it.'
Hoddle's sentiments were echoed by Chelsea legend Kerry Dixon, who has urged owner Abramovich and the club's fans to back Ancelotti.
'The season as a whole will obviously go down as a disappointment after the double last year,' he said. 'But these things happen and it has happened before.
'The club is in transition and I think a few players will leave in the summer and there will be one or two new signings.
'Hopefully the manager will be there to oversee the transition. It is important as far as this season is concerned to finish in the top three.
'We absolutely should keep him on. Last year coming in and winning the double was always going to be a hard act to follow.
'Okay, we have not managed to pick up a trophy. When things are not right at the club for one reason or another it can be understandable that things don't necessarily work out.
'The squad and the club that will end up taking the majority of the honours this year are one that pretty much are together, apart from Wayne Rooney's misdemeanours at the start of the year.
'They pretty much remained a solid group, got players back at the right time and probably deserve what they are going to get.' Guus raid is no Turkey shoot - Chelsea face battle to prise Hiddink away from international management EXCLUSIVE: Get Guus! Chelsea line up Hiddink return to replace AncelottiDid you say ?82 for one game? Chelsea announce ticket price hike in the week their season crumblesAll the latest Chelsea news, features and opinion
Explore more:People: Ryan Giggs, Wayne Rooney, Roman Abramovich, Glenn Hoddle, Carlo Ancelotti, Daniel Sturridge Places: London, United Kingdom