"We should have got him out and then (Sri Lankan captain) Angelo (Mathews) called him back to play," Ranatunga said. (Agencies)
"I am not blaming Angelo or (bowler) Sachithra (Senanayake), but that is what I would have done," he said.
"Our (on field) warning to Buttler a couple of times may not go down in the record books, but if we recalled him, then it would be recorded and showed that we had properly warned him," he added.
Senanayake ran out Buttler as the non-striker backed up during Sri Lanka's 3-2 series-clinching victory in the fifth and final one-day international at Edgbaston on Tuesday.
Sri Lanka captain Mathews, asked by the umpires if he wanted to uphold what was a legitimate appeal, did not call Buttler back and the wicketkeeper, whose blistering 121 had so nearly taken the hosts to victory in their narrow ODI defeat at Lord's on Saturday, was out for 21.
Ranatunga, who led Sri Lanka to its 1996 World Cup victory, insisted that Sri Lanka was well within the rules of the game, but it would have been better if Butler was given another chance.
England captain Alastair Cook reacted furiously to the dismissal, saying that a "line had been crossed" by the Sri Lankans.
But Sri Lanka's chief selector and former skipper Sanath Jayasuriya said that Buttler had received ample warning.
"No one can say our players did not warn Buttler," Jayasuriya said.
"Beating England in May and June is not an easy thing for a foreign team. This means our game is good, our cricketers are good. We don't have to worry about what they say,” he said.
"We warned Butler twice and got him out the third time. There is no issue with that," he added.
"We should have got him out and then (Sri Lankan captain) Angelo (Mathews) called him back to play," Ranatunga said.