Balotelli spent the 2014-15 campaighn at Anfield and started only 10 Premier League matches before being shipped back to San Siro on a season-long loan deal.
Gerrard has now revealed in his autobiography, which is being serialised in The Daily Mail, that he had concerns about Balotelli's professionalism from his first training session.
He said: "I had seen a staggering number of new signings walk into the Liverpool training ground.
"I watched every single one of their first training sessions with close attention, wondering whether we'd bought a star or another dud, a king or a prat, a Xabi Alonso or an El Hadji Diouf, a Luis Suarez or a Mario Balotelli.
"In my last season, Brendan Rodgers came to me at Melwood one day in mid-August. We had a chat on the training pitch. He said, 'You know we've missed out on a couple of signings. I'm basically left with no option but to have a bit of a gamble.'
Brendan paused before he spoke again: 'The gamble is Mario Balotelli.' My instant reaction was, 'Uh-oh.'
"I'd never met Balotelli but I'd heard all the stories about the indoor fireworks and Jose Mourinho describing him as an 'unmanageable' player. I could see that, in the right mood, he was a quality footballer but the rest of his career seemed like a spectacular waste of talent. That was my opinion of Balotelli.
"But I also had to admit that, when he played for Italy, he seemed able to switch on his gift like he was snapping on a bright light. Brendan implied that Balotelli didn't have anywhere else to go – and it seemed as if Liverpool would be Balotelli's last chance to shine at a major club. He would be offered a strict contract. Any bad behaviour would be punished.
"I reminded myself that I had always allowed every new player to come into the club with a clean slate. Balotelli's reputation tested that resolve but I tried my best to be open-minded. He made an immediate impression when we were doing work on our defensive set-pieces and Balotelli said to Brendan: 'I don't mark on corners. I can't.'
"I nearly fell into the goalpost. I was thinking, 'What are you? Six foot three, and one of the strongest men I've ever seen on a football pitch? And you can't mark on a corner?'
"Brendan was very firm. He said to Balotelli: 'Well, you can now – and if you can't then you're going to learn.' That was the first conflict between Brendan and Balotelli, on day one, but the manager stood up to Mario really well. From that point, Balotelli started marking on corners.
"I knew that Balotelli would simply not put in the work we needed from a lone striker. Away to Basel in the Champions League, Balotelli started the game and he was hopeless. After his promising debut against Tottenham he had lapsed in training and the subsequent games. His demeanour was very poor. I made up my mind pretty quickly after that about Balotelli.
"There was no friction between us but I could see Mourinho had been right when he said Balotelli is unmanageable.
"He is very talented with the potential to be world-class, but he'll never get there because of his mentality and the people around him. Balotelli's always late, he always wants attention, he says the wrong things on social media.
"For me, he doesn't work hard enough on a daily basis. You're always fighting a losing battle with Balotelli. He does too many things wrong."