Premier League - Man City deny Tottenham in thriller
It was a fitting conclusion to a memorable second half, which saw Spurs come back from two down in a spell of four goals in less than 10 minutes.
Ledley King had given Spurs an apparent boost by returning to their starting line-up, but proved the villain with his reckless challenge on Balotelli at the death, which gave referee Howard Webb no choice but to point to the spot.
Balotelli also returned after injury but only featured on the bench, with Edin Dzeko starting up front.
On Monday, Dzeko spoiled a potential goal of the season contender by impeding Sergio Aguero as he prepared to shoot, and the pair's lack of chemistry was exposed again on 18 minutes.
Nasri slid a ball for David Silva who cut it back from the left byline - but Aguero and Dzeko were both attempting to stand on the same spot, and got in each other's way as they tried to pull the trigger.
Aguero managed to escape his team-mate's attention just before the half-hour mark, hitting a low shot from the edge of the box that Friedel saved with his feet.
The 40-year-old goalkeeper also showed excellent anticipation and an impressive turn of speed to race out of his six-yard box to intercept a Gareth Barry through-ball intended for Dzeko.
Otherwise, City were quiet as City defended well in numbers. Silva, as usual, provided the most creativity with his passing, but the absence of Yaya Toure - at the African Cup of Nations with Ivory Coast - robbed them of a driving presence in central midfield.
Spurs played well and passed it slickly, but created next to nothing in attack. Defoe - starting in place of Emmanuel Adebayor, ineligible as he is on loan from City - was isolated, and the best inroads were made down the flanks.
The match burst into life on 56 minutes when Silva spotted Nasri's run inside from the left and played a magnificent through-ball to the Frenchman, who smashed the ball past Friedel.
Three minutes later, Lescott doubled City's advantage, bundling the ball in after Dzeko flicked on a Nasri corner.
Within a minute, Defoe reduced the arrears after Stefan Savic misjudged an aerial ball, allowing the striker to round Joe Hart and finish from a tight angle.
On 65 minutes, Spurs were level thanks to Bale, who whipped a beautiful curling shot into the top-right corner after Lennon teed him up.
Balotelli replaced Dzeko and could have been given his marching orders when he appeared to tread on the prone Scott Parker - the Italian's supporters will point out he was off-balance, and the contact might have been accidental.
In the first minute of stoppage time, Spurs raced away on the counter-attack and Bale squared for Defoe, who slid in and somehow sent the ball wide of the empty net. It was an incredible miss - reminiscent of Paul Gascoigne's chance against Germany at Euro '96.
City took full advantage. In the final minute of added time, Balotelli raced into the box and was clumsily felled by King - a clear penalty.
The striker picked himself up and found the bottom-left corner with typical nonchalance.
If City win their first title since 1968, the final minutes of this game will go down as a major stepping stone en route to glory.