Substitute Balotelli blasted in his spot-kick deep into injury time after the Italian striker had been bundled over by Ledley King for a clear-cut penalty.
But the City forward's winner was tinged with controversy after television replays suggested he was lucky not to be sent off in an earlier tangle with Scott Parker where he appeared to kick out at the Spurs midfielder's head.
The finale capped a remarkable game which had seen Spurs recover from 2-0 down to level at 2-2 with goals from Jermain Defoe and Gareth Bale after City had taken the lead through Samir Nasri and Joleon Lescott.
The victory helped preserve City's three-point lead at the top of the table after second-placed Manchester United kept up the pressure with a hard-fought 2-1 win at Arsenal.
United striker Danny Welbeck struck the winner nine minutes from time after Arsenal captain Robin van Persie had cancelled out Antonio Valencia's first-half opener for the champions.
Arsenal manager Arsene Wenger was subjected to angry chants from the home fans towards the end of the game for his controversial substitution of Alex Oxlade-Chamberlain shortly after the young winger set up van Persie's equaliser.
But the story from a pulsating day of Premier League action remained at Eastlands, where Spurs boss Harry Redknapp was fuming at the failure of referee Howard Webb to send off City match-winner Balotelli.
"Yes, I do think that," said Redknapp when asked if Balotelli should have been sent off. "It's not the first time he's done that is it? I'm sure it won't be the last.
"I'm the last person to talk about getting people sent off, but it's blatantly obvious if you see that, he reacts like that at times to challenges.
"I'm surprised the linesman hasn't seen it. The first (stamp) could be an accident, but the second one? He's back-heeled him straight in the head."
Assistant City manager David Platt hailed Balotelli's composure in striking the winning penalty but declined to comment on the player's earlier flashpoint involving Parker.
"Mario has got that ability to put a penalty like that away," Platt said. "With penalties he's got full confidence in himself, he looks at the keeper and tries to make the keeper make a mistake.
"I haven't seen the incident with Balotelli so I can't comment on it until I see it. If we continue to amass points and carry on winning we'll be tough to beat, but it doesn't change anything in terms of the title race."
After a scrappy first half where neither side managed to get a grip on the game, the contest exploded into life shortly after the restart with four goals inside nine minutes.
City drew first blood with a wonderfully worked opener on 56 minutes, David Silva releasing Nasri with a perfectly weighted through ball which took the French international beyond the Spurs defence.
The former Arsenal star ghosted away from Kyle Walker and Younes Kaboul and unleashed an unstoppable first-time shot that flew past Brad Friedel.
City looked to have taken a stranglehold on the match within three minutes when Lescott made it 2-0.
Edin Dzeko rose to flick on from a corner and Lescott was on hand to bundle the ball home after outmuscling Parker near the goal-line.
But City's goal celebrations had barely subsided before Tottenham were handed a way back into the game after a mistake by Stefan Savic.
A hopeful clearance forward from Kaboul was headed back towards the City goal by the Montenegrin defender but fell only as far as Defoe, who coolly rounded Joe Hart before stroking home to make it 2-1.
Five minutes later and Spurs were level. Aaron Lennon glided in off the left flank and laid off to Bale on the edge of the area, who unleashed a curling shot into the top corner beyond Hart.