Switzerland international Xhaka was sent off for violent conduct during Arsenal’s disappointing 1-0 defeat to Burnley on Sunday.
Berbatov insists Xhaka is making ‘too make mistakes’ and says Arteta must ‘take action’ on the player following his latest blunder.
The German playmaker was left out of Arsenal’s Premier League and Europa League squads earlier in the season.
Berbatov told Betfair: ‘I watched the Arsenal game against Burnley. I saw the red card, own goal and chances Arsenal missed.
‘Sometimes when you have all this combined, you are going to suffer.
‘You can get a red card, but when it is happening too often and that particular player Granit Xhaka is making too many mistakes and not learning from them, you need to take some action, because the whole team suffers.
‘Arsenal need to start performing soon otherwise there will be a serious problem. It would be shocking if Arsenal were in a relegation battle.
‘Fighting to stay up is never a good feeling for a player. For a big club, it is going to be surprising, disappointing and make you angry.
‘However, at the same time, it can drive you to play better and take responsibility. Opposition teams are going to provoke you and the Burnley game showed that.
‘I’m so surprised to see Pierre-Emerick Aubameyang. There is more pressure on him to score goals as the captain.
‘Maybe Mesut Ozil should come back into the team, you need someone creative who can come up with solutions when things aren’t going well in the final third.’
Arsenal, currently sitting 15th in the Premier League table, face in-form Southampton on Wednesday night.