Pele has acknowledged that Neymar has a problem with diving but believes the 22-year-old has worked to eliminate the trait from his game since joining Barcelona last year.
The football legend agreed with increasing criticism of Neymar's tendency to dive in an exclusive interview with ESPN FC on Wednesday.
"Yes, yes, he had this problem in Santos also," Pele said. "I think he tries to create fouls and situations that are not there. But now he got much better because in Europe, things are different."
Neymar came under fire for the issue again after Barcelona's 1-1 draw with Atletico Madrid in the Champions League, with Atleti boss Diego Simeone calling him out for going to the ground too easily.
"Diving is his characteristic, like Alexis Sanchez did when I coached him at River Plate," Simeone told Sky Sport. "This part of his game lets him down."
The three-time World Cup winner, who was in New York to promote his mobile app Pele: King of Football, explained that Neymar needed to move to Europe to evolve his game after dominating in Brazil with Santos, where Pele also was also a star years ago.
The forward has nine goals and nine assists so far in league play for Barcelona and Pele believes that he has benefitted from deciding to test his skills in La Liga last summer.
"The good thing with Neymar is that Barcelona moved to sign him six months ago. This experience is fantastic for him," Pele said. "In Europe, football is more tough, more difficult. For him to grow for the national team of Brazil is fantastic."
Though Pele expects an improvement from the still-developing Brazilian, he has urged fans of the Selecao to not get ahead of themselves in their expectations of Neymar ahead of the upcoming World Cup.
"What makes me worried a little bit is the pressure on him," Pele said. "Because the World Cup is a tournament, it's not just one game.
"Everyone expects Neymar is going to win the World Cup for Brazil. This is very dangerous for him."
Pele also addressed his relationship with longtime rival Diego Maradona.
The Argentinean legend reignited his feud with the Brazilian after FIFA awarded Pele an honorary Ballon D'Or in January. Maradona said that Pele will always remain second to him, comments that weren't taken too lightly.
"Always, he says something, but you know I've [always been respectful] to Maradona as a player. When he was in trouble, I try to bring him to Santos. Then after, he had all of those problems," Pele said.
"Unfortunately, now I can't help Maradona as man or a person outside of the field. It's the same as when he was on the field, today he has a lot of problems. That's my point, but I respect him. I think he was a great player, no doubt."