The 21-year-old midfielder made 52 appearances for the club last season and has missed only one game to date this season as well as establishing himself as England's most-capped international at Under-21 level.
Allardyce told the Evening Chronicle: "James is so enthusiastic about his game that we actually have to stop him doing stuff, and that's always a problem.
"It's quite a nice problem, but it is a problem because at the end of the day, a young man of his age can still burn out mentally as well as physically.
"We are always holding him back – we are always sending him in because we want him to get enough rest.
"James Milner's progression has been fantastic, but my side of it is the vast amount of games at 21 years old he has played."
Allardyce added: "He is a terrific prospect and a lad who has come through the mill here. In two or three years, he could be a really top player."