Balotelli was given special permission to attend a charity event on Friday while the rest of Italy's squad was kept inside the team hotel to avoid running into anti-government protests.
Prandelli later clarified his statement during the conference, saying he was joking.
Gaffe: Italy's coach Cesare Prandelli and forward Mario Balotelli during Italy's training session
He added that Balotelli - the son of Ghanaian immigrants and Italy's only black player - was allowed out because he was accompanied by people showing him where to go and because he was taking part in a social project.
Balotelli supports a social project for one of Salvador's largest slums.
'He had special permission, considering the types of things he has done here and that he has already been here twice,' Prandelli added. 'It's important for a footballer to realize how fortunate he is and to help others.'
It doesn't appear that Balotelli was offended. He tweeted, 'I look like a person from Bahia!!!'
Goals: Balotelli has scored twice in the Confederations Cup so far
Also in Salvador on Thursday, a bus carrying FIFA logos was one of several parked vehicles attacked with stones, local organizing committee spokesman Saint-Clair Milesi said.
Prandelli denied speculation that Italy had asked to withdraw from the tournament.
'We have avoided leaving the hotel and there is some concern but we're not considering returning home,' Prandelli said Friday.
Big game: Italy have won their opening two matches and next play Brazil in Group A
There have been violent protests before each of Brazil's two matches at the tournament so far.
'If someone protests and expresses their unhappiness they should be respected, as long as the protest is done in a non-violent manner,' Italy midfielder Riccardo Montolivo said.
'As sportsmen we're hoping that tomorrow there is a great football match at the stadium and that nothing happens outside the stadium,' Prandelli said. 'It would be a paradox if inside the stadium we're trying to put on a show for the fans and 150 meters outside the stadium there is violence.'
Rampage: Protestors run away from a policeman during the riots in Rio
Each of the eight teams in the tournament have police escorts when they move around, and Italy have a security coordinator from Rome coordinating arrangements with local officials.
Brazil's squad has had extra security since arriving in Salvador.
'Civil protests can stimulate improvement for the country, but when they turn violent it becomes worrisome,' Prandelli said. 'When there are a lot of people it becomes difficult to control those who turn violent.'
Outrage: Thousands of Brazilians have taken to the streets during the last few days
'No, not that I'm aware of,' he said. 'We're focusing on the match. We're attentive to what is going on around us but we don't have any worries of that sort.'