Sunday's loss left City, bidding to be crowned champions of England for the first time since 1968, eight points behind leaders Manchester United with just six games left to play after the title-holders beat Queens Park Rangers 2-0 at Old Trafford earlier in the day.
As if seeing City go down to Mikel Arteta's 87th minute goal wasn't bad enough, there was still time for Mancini to witness Balotelli being sent off for a second bookable offence at the Emirates Stadium.
And for Mancini, his fellow Italian's latest transgression appeared to be the final straw as he revealed the striker would not feature again this season.
However, a City spokesman said that was because he expected the Football Association to take severe disciplinary action against the controversial 21-year-old, who is now facing a minimum three-game ban.
Asked how long he could tolerate Balotelli's behaviour, Mancini said: "I am finished. We have six games and he will not play in the next six games."
Pressed on whether he would try to sell Balotelli at the end of the season, Mancini said: "Probably -- but I don't know. It depends, because Balotelli is a fantastic player.
"I can continue to play with Mario on the pitch. Every time, we risk one sent off, like today (Sunday). But he can score also in the last minute."
Balotelli was lucky to be on the pitch when he was eventually dismissed after referee Martin Atkinson and his linesmen somehow failed to witness his first-half knee-high tackle on Alex Song.
Mancini, reflecting on Balotelli's challenge on Song, said: "From the bench I didn't see the first tackle but it was a bad tackle (after seeing the TV replay)."
Balotelli, asked if FA chiefs should look at the tackle on Song, Mancini said "I hope so", admitting the forward deserved a lengthy ban.
He added: "I defend him always because Mario is a good guy, but if he doesn't change in the future he can lose all his talent.
"If he doesn't understand this, after two years I can't do anything. I hope for him that he can improve, that he can understand that he can't continue like this, for his future, for his talent. I'm very sorry for him for this."
Before kick-off Mancini said City had to beat Arsenal to maintain their title challenge, telling Sky Sports: "Today for us is like a final, otherwise eight points is too much.
Afterwards Mancini, asked if City's title bid was over, replied: "No, it's not mathematically (over), but it's clear now that it's very difficult.
"We have a game in three days (at home to West Brom on Wednesday) and we will try to win. Never say never in football.
He added: "In life until it's over you should do your best. In the end if we don't win it's probably because they (United) did better than us.
"It's clearly difficult (to lift the players) but we play in three days and this is good. We are a professional team, with professional players. It's important we start to win and finish the championship well."
Source: AFP
Source: AFP