The unprecedented ruling allows Balogun to feature in the USA's FIFA World Cup last-16 clash against Belgium on Monday, despite receiving a straight red card during the Americans' 2-0 victory over Bosnia and Herzegovina in the round of 32.
Balogun, who has already scored three goals at the tournament, was dismissed after a VAR review found he had stepped on a Bosnia-Herzegovina defender's foot. Under FIFA regulations, a straight red card automatically results in a one-match suspension.
However, FIFA's disciplinary committee ruled that the suspension would instead be placed on probation for one year, allowing the striker to remain available for selection. The decision has sparked widespread criticism, with FIFA offering no detailed explanation for the dramatic U-turn.
In a strongly worded statement released on Monday, UEFA said the move undermines the integrity of football's laws and could have damaging consequences for the game.
"Yesterday's decision to suspend for a probationary period of a year the implementation of the one-match automatic suspension following the red card issued to the player Folarin Balogun crossed a red line," UEFA said, as quoted by Flashscore.
"Football, like any other sport, relies on rules, which are the basis for fair, honest and transparent competition."
UEFA added that decisions made at the World Cup influence football globally, describing FIFA's ruling as "unprecedented, incomprehensible and unjustifiable."