The City manager replaced Balotelli moments after the Italian striker wasted a one-on-one chance by attempting to score with an extravagant backheel.
As soon as the ball flew wide, Mancini jumped angrily to his feet and instructed James Milner to warm up before taking Balotelli off minutes later.
Scroll down to see the video of Balotelli's bizarre attempt on goal
Angry exchange: Roberto Mancini and Balotelli clashed after the striker was substituted in the first half
To make matters worse, Balotelli thenquestioned his manager's decision, prompting an embarrassing touchline scene in front of baffled American spectators.
Afterthe game Mancini said: 'We need to be always professional, always serious, and in that moment I did not think Mario did this. That is why Itook him off.
'He knows he made a mistake. In football you should always be serious and ifyou have a chance to score, you should score. I hope he has learned his lesson.
'It is punishment enough for him to be substituted after 30 minutes. But for me it is now finished.
Angry reaction: Balotelli's bizarre effort on goal attracted criticism from his team-mates
'But Mario is young. Sometimes he makes mistakes. But I want to help him always. If Mario is serious, he can play for 90 minutes. If not, then he will join me on the bench, as he did. It is the same for all players.'
Asked what Balotelli had said to him, Mancini replied: 'It was in Italian. In English I would find it difficult to give you the translation. But Mario is streetwise, he knows he was not offside.'
Galaxycoach Bruce Arena said: 'I thought it was odd. I don't know what the player was thinking, whether he thought he was offside or not.'
City midfielder Nigel de Jong added: 'Everybody's seen it, it wasn't a great action and the coach took a decision to take him off. That's a decision that's been made and that's a statement that the group is behind him.
'If you are near the target, you should make an attempt to score. Everybody knows that, and Balotelli too. I hope he learns from this moment and that we as a group to emerge stronger.'
Mancinihas supported Balotelli through thick and thin since persuading City topay ?23m for the Italian international last summer.
Not so super Mario: Balotelli was subbed off after half an hour despite scoring a penalty against LA Galaxy
However,the City coach takes pre-season games seriously and was clearly furiousto see Balotelli treating the occasion as an exhibition.
City led 1-0 at half-time in the Home Depot Center against a home team featuring David Beckham.Balotelli had given his team the lead with a penalty ten minutes before he was substituted.
Howeverthe second half proved to be very difficult for City and ultimately they were quite fortunate not to head home to Manchester tonight on the end of an embarrassing defeat.
Galaxysubstitute Mike Magee equalised spectacularly from distance in the 54thminute and the home team, by now without the substituted Beckham, had several chances to score as the game reached the final third.
As it was, the match was settled by a penalty shoot out that City won 7-6, goalkeeper Joe Hart converting the winning kick.
Friendly fire: Richards (right) is brought down by Galaxy defender Jordan
Certainly Mancini will be disappointed by what he saw during a game that he would have expected to win comfortably in normal time.
Fielding a strong starting line-up that featured both Balotelli and Edin Dzeko as well as last season's central defensive pairing of Joleon Lescott and Vincent Kompany, City were the better team during the first half and should have been ahead early on.
Spanish international David Silva spurned one chance in the 12th minute, shooting across goal and wide with his left foot after being played in by Balotelli, and saw another effort saved by goalkeeper Josh Saunders.
It was full back Micah Richards who won the decisive penalty, though, as he was brought crashing to earth bya clumsy challenge from Bryan Jordan.
Always a red: Former United star Beckham is pressured by City striker Dzeko
Balotelli took the penalty calmly with his right foot but all that was forgotten when he was played clear by Silva ten minutes later.
With Dzeko unmarked to his right, the Italian could have passed or shot himself. Instead, though, he attempted a crazy manouevre he must have learned on the training ground and was roundly jeered when the ball flew wide.
Mancini's reaction was understandable but unfortunately the incident over shadowed the rest of the game.
Silva brought a good save from Saunders before half time arrived but after that Galaxy assumed control.
All smiles: Beckham greets City coach David Platt
Magee scored a superb goal in the 54th minute, firing a dipping volley over Joe Hart from 25 yards.Hart may have been a little disappointed to be beaten from such a distance but the England international made amends soon after with an impressive double save.
First Hart saved with his legs from point blank range from Todd Dunivant and then, when the ball was fired back in by Dan Keat, he plunged to his right to push the shot round the post.
Certainly City were unimpressive in the second period. They could have won it when substitute John Guidetti was denied by the goalkeeper in the 89th minute and then spooned the rebound over. It would, however, have been a victory Mancini's team didn't really deserve.
As it was City at least avoided defeat in a penalty shoot out that threatened to go on for ever. Both Guidetti and Lescott spurned chances to win it after Hart had saved from Jack McBean and Dunivant had struck the post.
But ultimately the goalkeper had to take responsibility himself, crashing home the winning kick after saving moments earlier from AJ DeLaGarza.
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