The 22-year-old activated a one-match ban by picking up a fourth yellow card of the season during a 2-2 draw with Fiorentina but his post-match altercation with an assistant referee earned him a further two-match penalty.
Balotelli missed last weekend's 1-1 draw with Napoli and will sit out Sunday night's top-three encounter with Juventus but can feature against Catania at San Siro on April 28.
A statement published on legaseriea.it read: "AC Milan have challenged the penalty of a three-match suspension imposed on Mario Balotelli after the Fiorentina-Milan game of April 7.
"The appeal has been partially successful and, as a result, the penalty is reduced to two matches with the third disqualification being commuted to a fine of 20,000 euros."
Balotelli has scored seven goals in eight games for Milan since leaving Manchester City in January.
The Rossoneri are currently third in Serie A and trail second-placed Napoli by four points with Fiorentina their nearest challengers for the last Champions League spot.