Deep into added-on time, with the score at 1-1, on-field official Robert Jones ruled that Fabio Silva had tripped George Baldock inside the penalty area.
While there was contact, Silva appeared to withdraw his foot rather than make a challenge, while Baldock opted to continue playing rather than appeal for a foul.
Nevertheless, the penalty was awarded and subsequently converted by Oliver Norwood, earning Sheffield United their first top-flight win since promotion from the Championship last season.
After the game, Wolves boss Gary O'Neil was critical of the call made by Jones, who he says stuck by his decision when they debated it in the officials' changing room.
O'Neil also claimed at the time that Jones "was so quick" to give the penalty, and Gallagher has echoed O'Neil's opinion, feeling that the referee should have given himself more time.
Speaking on Sky Sports News, Gallagher said: "I think the referee gave it too quickly. The best players in the world create time on the ball, the best referees create a little bit of thinking time.
"Unfortunately for Rob Jones, whether he wanted to get in quick because he just wanted to make a decision, I don't know, but there was no need to rush it and I think if he had waited two seconds, he would have seen how it unfolded and he would have probably made a different decision.
"What I do feel is that once it is given, because there is physical contact, albeit minimal, the VAR is not going to over-rule it. But, for me, it was best left alone."
Wolves have now been on the receiving end of four controversial decisions in 11 games, the first one against Manchester United on the opening week of the season leading to an apology from PGMOL chief Howard Webb.
Since then, Joao Gomes was harshly adjudged to have handed the ball when it had deflected off his leg during the second half of a fixture at Luton Town, the resulting penalty being converted and earning the Hatters a 1-1 draw.
Meanwhile, Hwang Hee-chan was penalised for a perceived foul in the area on Newcastle United defender Fabian Schar on October 28, despite withdrawing his boot and Schar instigating the contact, with the Magpies netting the spot kick to go 2-1 ahead just before half time.