Bayern Munich stalwart Lahm has been traditionally used as a defender for much of his career but moved to midfield last season under club coach Pep Guardiola.
The Spaniard reasoned that Lahm was "perhaps the most intelligent player" he has ever coached but former Germany captain Ballack feels Lahm is wasted when not playing at the back.
Ballack, who featured in the centre of Germany's midfield for over a decade, also believes it removes a place for Bastian Schweinsteiger - who is yet to make a start at the competition in Brazil.
"I don't understand why Low sees him (Lahm) in midfield," Ballack wrote in a column for German newspaper Express.
"Don't get me wrong, he is a super player - but he is needed in the back four in the national team. He is much more valuable there. He's played there for years, and has turned into a world-class player.
"Why should we, by free choice, rob ourselves of Lahm in a position the whole world envies us for? We only weaken ourselves.
"Moreover, Lahm takes away a place on the pitch for another world-class player. And that's Bastian Schweinsteiger for me."
Germany wrap up their Group G campaign against the United States on Thursday - with the sides level on four points.
If Low were to opt for Lahm at right-back, Ballack said a defence including the 30-year-old, Per Mertesacker, Mats Hummels and Jerome Boateng would serve them well.
"This would be a defence with World Cup class," he added.
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