The win ensured City moved to the summit of English football for the first time since August 2007, although that honour may only last a few hours, with Manchester United playing in the late kick off at Birmingham.
Balotelli opened the scoring with a penalty with just seven minutes gone and Joleon Lescott added a second with a header five minutes later.
City's third was the best goal of the afternoon, with Balotelli tapping in from close range after a long passing move just before the half hour mark.
And the Italian striker completed his hat-trick after half-time with his second penalty.
For Aston Villa, a sixth defeat in seven matches left the Birmingham club just two points above the relegation zone.
French manager Gerard Houllier, who has won just three of his 13 Premier League matches in charge, was abused by Villa supporters throughout the second half as his side went down to another miserable loss.
City boss Roberto Mancini left star striker Carlos Tevez on the bench but the hosts controlled possession from the start and took an early lead.
David Silva attempted to slide a pass into the area for Balotelli and young defender Eric Lichaj bundled the forward over for a clear penalty.
Balotelli took the spot kick himself, calmly stroking the ball past Villa goalkeeper Brad Friedel.
City almost doubled their advantage when Silva's pass picked out Yaya Toure and the midfielder's shot was turned wide by Carlos Cuellar's desperate block.
But City scored from Adam Johnson's ensuing corner, with Lescott's header crossing the line before Barry Bannan could head away.
Villa created their first goalscoring chance with 15 minutes gone when Stewart Downing drilled a free kick just wide of Joe Hart's goal.
Midway through the first half City scored a third goal after a lengthy spell of possession.
Yaya Toure picked out Silva, who burst into the area and hit a shot that Friedel could only palm out to Balotelli, who tapped into an empty net.
City were hungry for more goals and Silva had a shot deflected wide by Lichaj.
But eight minutes into the second half, a fine run from Johnson was halted by a trip from Marc Albrighton in the area, earning another penalty.
Balotelli produced a replica of his first-half effort to put the game well beyond Villa's reach.
City substitute Jo could have scored a fifth when he got on the end of Vincent Kompany's flick only to volley over the bar.
Pablo Zabaleta also missed from long range after Jo made a mess of his attempted overhead kick from Johnson's cross.
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