Mancini is fed up with Balotelli's wild ways - including his smoking habit - and is fast losing patience with the maverick Italian.
Balotelli partied until the early hours after Saturday's 1-1 draw at Stoke. He was pictured with boxer Amir Khan on a night out at Circle Club in Manchester.
Mancini was angry as he wanted Balotelli to rest after the Stoke match ahead of their opening European match against the Spanish giants.
As a punishment, Balotelli was forced to travel to the Bernabeu despite being told he wouldn't play a part before stepping on the plane.
A source told the Daily Star: "Mario Balotelli is in the bad books on two fronts - a very late night out after the Stoke game and his refusal to stop smoking. He and Mancini had words on Monday afternoon and it led to him being dropped from the squad."