The 22-year-old AC Milan frontman was ruled out after tests and will now be assessed ahead of either the final or the third-fourth place play-off game on Sunday.
A statement from the Italian Football Federation said: "The examinations carried out this afternoon [Sunday] in Fortaleza on Mario Balotelli showed a grade-one tear in the quadriceps muscle of the left leg.
"The player will not be available for the semi-final against Spain on Thursday, June 27 and in the coming days, his condition will be evaluated for the match on the 30th."
Balotelli picked up his injury in Saturday's 4-2 defeat by hosts Brazil.
Midfielder Andrea Pirlo, who missed the Brazil game with a leg injury, is improving, while Riccardo Montolivo sat out training on Sunday after picking up a head injury in the previous night's game.