The Italian, 26, scored 15 goals in the French Ligue 1 last season as Nice finished third to reach the qualifying rounds of the Champions League.
Balotelli signed on free transfer from Liverpool in August 2016, two years after a £16m move to Anfield.
The ex-Manchester City striker has also scored 13 goals in 33 appearances for Italy but has not played for the national side since the 2014 World Cup.
Nice striker Mario Balotelli has signed a new one-year contract with the club.