The pair famously fell out in the mid-1990s, when Gallagher was the lead guitarist and songwriter in Oasis and Albarn fronted their Britpop rivals Blur.
Gallagher told NME he would rather work with Albarn than Radiohead's Thom Yorke, saying: "If I was gonna make a record, it would be with Damon. For a start, he's as mad as a box of frogs.
"Number two, he'd get loads of hip-hop dudes working on it, which itself would be f**kin' mental. And number three? It would be a better record."
Gallagher revealed last year that he and Albarn had met and resolved their differences over a drink. Speaking about the encounter, the ex-Oasis star said: 'It was quite a moment. We'd never been in the same room for maybe 10 or 15 years.
"And I always said to myself if I ever was, I'd go and say, 'F**king hell, alright man?' and shake his hand and let bygones be bygones and all that.
"It was a great relief. I'm glad I've seen him and shook his hand and apologised for all that s**t... That's over and done with now."
During the same interview, Gallagher confirmed that his second solo album, recorded with Amorphous Androgynous, would not be released until 2013.
Watch Noel Gallagher talk about Damon Albarn in an outtake video from 2003 Britpop documentary Live Forever: The Rise and Fall of Brit Pop below: