The 21-year-old playmaker is among the most sought-after talents in Serie A after displaying year-on-year improvement in his game.
Last season saw him add a goal threat to his impressive repertoire after he scored 11 times in the Italian top flight.
His efforts have not gone unnoticed, with AC Milan having been strongly linked with an approach for his services.
The Rossoneri have cooled their interest after struggling to shift Robinho, but clubs across Europe continue to monitor his situation closely.
Montella understands why Ljajic is generating so much hype, but believes his ongoing development would benefit from extending a deal in Florence which is due to run until 2014.
He said: "Adem has experienced important growth over the last few months, but he needs to improve again.
"For me, and I have told him this, he should stay at Fiorentina for at least one more year, preferably longer, if he is to become a champion."