The 25-year-old Algeria international has been with Leicester since 2014 and enjoyed a superb 2015-16 campaign, scoring 17 times for the title-winning Foxes and being crowned PFA Players' Player of the Year.
Ranieri has consistently stated Mahrez will not leave Leicester in the summer transfer window but has now expanded on that view, stating his belief that a big-money move to another club could actually be detrimental to the player.
"I speak often with him and say stay with us, it's much better for your future, I think he is an intelligent man and he will stay," Ranieri told Sky Sports News HQ.
"We support him very well, this is important, when you change teams maybe you don't find team-mates who help you at the same level.
"He improves more if he stays with us for another year, maybe next year he can think about another solution. If he goes for a lot of money, everybody will be expecting something special. He can do something special, but with us."
Ranieri also confirmed Leicester's proposed transfer for Polish midfielder Bartosz Kapustka has not been completed, and hinted there may be further additions to his squad.
Leicester have signed Ron-Robert Zieler, Luis Hernandez, Raul Rubio, Nampalys Mendy and Ahmed Musa during the current window and have bid £5.25m to Cracovia for the player, who was a key player for Poland at Euro 2016.
"It [the Kapustka deal] is not signed, I will speak when it is done," said Ranieri.
"It's difficult to say this is the last player. I say yes, now it's finished, but 90 per cent, 10 per cent something will happen."
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