Crystal Palace's on-loan midfielder netted twice in a 3-1 win against the Toffees but has been cautioned a Stamford Bridge return to hamper his chances of becoming an England regular.
Asked what Gallagher should do when he makes a Stamford Bridge return in the summer, Allardyce told talkSPORT: "Well I wouldn't spend too long there if I don't get into the first team.
"I'd want to come back and give it a go and I think on his form at the moment and you have to bear in mind now he made his England debut, he's an England international.
"He would want to go back and try and get in the team but I think if you do that, you've got to play enough first team games because if you don't you can easily fall backwards like Jesse Lingard.
"Staying at Man United I think has been a bad choice for him because he's not been selected.
"While at West Ham he was one of the best goalscoring midfield players in the Premier League in his time there now he's sitting on the bench at Man United.
"So you have to be very careful on your choices at the right time and if you're playing as much football as Conor's playing now, and enjoying it more than ever with Palace then you want to continue that.
"If that's not at Chelsea it can certainly be somewhere else in the Premier League I'm sure."
Allardyce managed Gallagher during his loan spell with West Bromwich Albion and he's been thrilled by the starlet's progress.
"That young man I had last year, Conor Gallagher at West Brom, he's upped his game by 25 per cent," he added continued.
"I think he's looking 20/25 per cent better, I mean of course he couldn't show those skills often enough at West Brom because of the struggles we had.
"But certainly that experience last season has stood him in good stead, a fantastic young man as well and a really really great lad, he's got a terrific smile when you see him on tele!"
Gallagher's current boss, Patrick Vieira is relishing having the promising midfielder in his side and the Premier League legend wants to see even more front the young talent.
"He wants to improve, he is really humble, is working hard and the challenge for him is to maintain that level to fulfil his expectation," he said.
"Today he was fantastic and I think when the team play at that level as well, it allows him and some of the players in the team to express themselves.
"I don't know if I should put a number or not but if you look at the number of chances he is creating in the game and the number of chances the team are creating, his timing to get inside the box is always good and he can finish.
"We have to keep challenging him, keep working with him to keep improving but he can score so we as a team have to play to allow those type of players who have the quality to score to take their chances."