"Italy has no dignity or pride, it can't be right to see teams with 15 foreigners," Italian media quoted the 68-year-old as saying during an awards ceremony in Montecatini Terme.
Sacchi, whose memorable AC Milan side included Ruud Gullit and Frank Rijkaard, Dutch players of Surinamese heritage, said his observation was based on the annual Viareggio international youth tournament, held annually in Tuscany.
"I'm certainly not racist and my coaching history shows that, starting from (Frank) Rijkaard, but watching the Viareggio tournament brings me to say that there are too many coloured players, also in the youth teams," he said.
Sacchi later told Gazzetta dello Sport: "I only wanted to underline that we are losing our national pride and identity.
"I've been misinterpreted, can you imagine that I'm really racist? All I said was I saw a game featuring a team who fielded four coloured players," he added.
"My history speaks for itself, I've always coached teams with great players from every colour and I've brought in a lot, whether to Milan or (Real) Madrid."
Sacchi won successive European Cup titles with AC Milan in 1989 and 1990 and also led Italy to the 1994 World Cup final.
He is regarded as one of Italy's most influential coaches, even though his career was relatively short. He was also director of football at Real Madrid for one season.
Italian football has struggled to cope with racism, sometimes at the highest level.
Last year, Carlo Tavecchio, a candidate for the Italian federation (FIGC) presidency, caused an outcry when he made a comment about a fictitious African player, he named Opti Poba, 'eating bananas'.
Despite the storm, Tavecchio won the election and an FIGC investigation found he had no case to answer. However, he was later given a six-month ban from UEFA and FIFA activities.
Sampdoria president Massimo Ferrero was banned for three months in December for referring to Inter Milan's Indonesian owner Erick Thohir as 'that Filipino'.
(Writing by Brian Homewood in Berne; editing by Sudipto Ganguly)
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