The Italian boss saw his short and controversial reign at the Stadium of Light come to an end on Sunday, with Sunderland bottom of the Premier League.
Di Canio had made several public statements criticising his players, and Pallister, who won the top-flight crown four times with Manchester United, believes that he made his position untenable.
"Once you start berating players in public I think you are on thin ice because you lose the players respect in the dressing room," he said.
"It is all right if you get it in the neck off your manager, as I did plenty of times getting the 'hairdryer' off of Sir Alex Ferguson.
"If he gives you a dressing down in front of the players in the dressing room you accept it, you don't always agree with it and you might argue with him but if it is done in the confines of the dressing room it stays there.
"You don't berate players publicly and we saw him at Swindon grab hold of a player and berate him on the pitch, we have seen him drag a goalkeeper off after 10 minutes and embarrass the kid in front of his home fans.
"You can't keep on doing that, you have got to get some kind of reaction from players."
Kevin Ball, who took charge of the 2-0 League Cup victory over Peterborough United on Tuesday, has already stated his desire to take the job on a permanent basis.
Pallister also cast an eye towards his former club's match against rivals Liverpool in the League Cup on Wednesday.
He added: "The most successful teams in England going head-to-head. There has been an intense rivalry for a number of years and it is still as passionate as ever in these games.
"Both sets of supporters will be desperate for a win especially after
what happened at the weekend and I am expecting it to be another titanic
struggle."
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