Sacchi, a renowned football coach and innovator who notably helped Milan to back-to-back European Cups in 1989 and 1990, has claimed he is "not racist".
But comments made on Monday, when he said "too many blacks" played in Italy's under-20 leagues, have attracted widespread criticism on social media.
"Italy now has no dignity or pride, because we have too many foreigners playing in the under-20 leagues: in our youth sectors there are too many blacks," Sacchi said during an awards ceremony in Montecatini Terme late on Monday.
A growing number of sports personalities, including former England international Gary Lineker, hit out at the comments.
But the agent of Italy star Balotelli, born to Ghanaian parents but adopted by white Italians, called Sacchi "ignorant" and, in ironic tones, said the comments had given a bad impression of Italians.
"Italian Football too many ignorant people in power so we're in the s… Ashamed to be Italian when I hear Sacchi's declaration. Bella figura (great impression)," said Mino Raiola.
Lineker posted a Twitter comment on Tuesday which said: "There are too many racists in Italian football."
There are too many racists in Italian football.
— Gary Lineker (@GaryLineker) February 17, 2015
Sacchi, a former director of Italy's national team at under-21 level, claimed he was not racist because he signed a player like Frank Rijkaard, a Dutchman of Surinamese origin, when he was coach at Milan.
But the 68-year-old insisted that "too many coloured players" featured for Italian youth sides at the famous Viareggio tournament, known in footballing circles as the Viareggio Cup World Football Tournament.
"I'm certainly not racist, as my coaching history demonstrates with Rijkaard," added Sacchi. "But look at the Viareggio tournament. I would say that there are too many coloured players, also in the under-20 teams in Italy."
He later claimed his comments were misinterpreted, adding: "I've been misinterpreted, you think I'm really racist? All I said was I saw a game featuring a team who fielded four coloured players.
"I only wanted to underline that we are losing our national pride and identity."
Italy's Serie A, once the envy of Europe, is currently in crisis and the national football team – four-time winners of the World Cup – has failed to make it past the first round group stages of the competition for the past two editions.
Raiola appeared to suggest Italian football is in its current state because of the racism issues which have plagued the sport, and the country, for decades.
He added: "In this world there are no foreigners, only people. Sport should be open to everybody, whoever plays best plays. Italian football in the sh… because of this."