Mahrez has not trained since City withdrew their interest on Wednesday's due to Leicester's demands.
"Riyad is not available for this game," Puel told a news conference on Friday.
"All I can say about the situation is that this is the best decision for Leicester, in the best interests of Leicester. It is also the best decision for Riyad.
"It is a tough situation for us to manage but now it is time to move on and keep our focus."
It is not the first time that Mahrez, who played a huge role in inspiring Leicester's remarkable 2015/16 Premier League triumph, has tried to force his way out at the King Power.
However, Puel is hopeful the 26-year-old can return for the remainder of the season having also played a big part in Leicester's upturn in fortunes since the French coach replaced Craig Shakespeare in October.
"I hope he can come back with us. He is an important player for us, of course," added Puel.
"He can come back to the team and we need to stay united. It is difficult to manage but it will stay inside the club. We need to move forward and focus on football.
"We can't change anything about the situation. We needs to find again a good feeling and help him come back with a positive attitude to enjoy his football."
Reports suggest City were willing to offer ?50 million ($71 million, 57 million euros) plus a player they valued at ?15 million to land Mahrez.
But the Foxes asking price was closer to ?80 million cash which the Premier League leaders were not willing to pay.
Mahrez joined Leicester for just ?350,000 from French side Le Havre in 2014.