The 1990 Nobel Peace Prize winner also said he saw little difference between the country's current political system and the one that unravelled under his watch in the dying days of the Soviet Union.
He called the ruling United Russia party of which both Putin and Medvedev are members a "rotting monopoly" that was suffocating life out of Russian politics.
"It is preventing the development of democratic processes," said Gorbachev. "United Russia reminds me of a bad copy of the Soviet Communist Party."
But Gorbachev expressed some of his deepest frustrations with what he said was an erosion of basic democratic norms.
President Medvedev and his predecessor and current prime minister Putin have repeatedly said they will sit down and privately decide which of them should run in elections scheduled for March 2012.
The decision could effectively decide the fate of the presidency in a country where the ruling Kremlin party dominates all facets of politics and has unrestricted access to the media.
But Gorbachev -- who turns 80 on March 2 and has been using the added media attention to criticise the country's political course -- said such a decision would contradict all democratic norms.
"It is immodest to say that we will sit down with Dmitry Anatolyevich (Medvedev) and decide," Gorbachev said of Putin.
"I do not like how they are acting. This is not Putin's -- this is the nation's business. This is the decision of those who vote," Gorbachev told reporters.
"We all have to be a little more modest," he said. "Their confidence has grown into overconfidence."
Medvedev and his mentor Putin have not said when they intend to decide which of them should run in 2012.
The president's top aide said in December that he felt that Medvedev "wants to continue his term and continue the agenda he started in 2008".
Putin for his part has said that the decision would be based in part on the country's economic performance between now and the end of the year.
Gorbachev has enjoyed little support among Russians since resigning as the last president of the Soviet Union in December 1991.
He has been blamed for overseeing the demise of a superpower and giving way to a system in which the few benefited at the expense of tens of millions of Russians who lived throughout the 1990s in abject poverty.
But Gorbachev has used his position as the partial owner of the Novaya Gazeta opposition newspaper to fire periodic barbs at Putin and criticise Medvedev for failing to deliver on his more liberal promises.
On Monday he lashed the so-called "ruling tandem" for overseeing a country in which the Kremlin's monopoly on power stretched from parliament to the courts.
"We have the institutions, but they have to be doing effective work," he said.
He also reaffirmed his criticism of a Moscow court's December decision to extend the jail sentence of Russian oil tycoon Mikhail Khodorkovsky for another six years.
Khodorkovsky -- a sworn political enemy of Putin before his 2003 jailing on tax evasion charges -- has accused the Kremlin of masterminding his arrest and conviction, and Gorbachev said he tended to agree that the case was political.
A court aide said last week that she believed that the judge who read Khodorkovsky's sentence was acting on higher instructions and had not himself written the sentence that extended the tycoon's stay in jail until 2017.
"This case has been political from the start," said Gorbachev. "This is a form of reprisal."
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