The 35-year-old Katich's dropping from the list has prompted strong reactions from a lot of former players, who believe that the veteran left-hander has been given the cold shoulder despite being in reasonably good form.
In fact, Katich is expected to make an announcement on his future tomorrow and speculation is rife that he might retire.
Warne said he was also disappointed by CA's decision but could understand the reasons behind it.
"Katich losing his contract was a bit disappointing because I think he's been a true performer for a while. But I understand the logic of leaving him out," Warne told radio station 'Triple M'.
"The one thing about Cricket Australia I would say, and the current (group); if you're going to say you're in transition, I think for the fans and the public and everyone out there who wants to support the Australian cricket team, let's see some youngsters in there," he added.
Warne did not take names but the 30 somethings in the latest list of contracted players include the likes of former captain Ricky Ponting and middle-order batsman Michael Hussey.
"Don't hang on to the older guys in there, say 'we're in transition, give us a bit of time', but have 35 or 37-year-olds still playing Test cricket or one-day cricket. Get them in there, to get some experience and say 'we're in transition'.
"Let's stop sliding down to No. 5 in the world; (if) we keep playing the same players but saying 'we're in transition', it doesn't work," he said.
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