In fact, you can sometimes omit the verb 'to be' between verbs such as think, believe and consider, and the adjective which follows it. For example: I thought it wise to leave. Consider it done. However, I wouldn't recommend that learners try to use sentences of this type. As a general rule, it's best to stay with the standard grammar and say 'I think it's better'.

"I think it's better" is correct. "It's" is a contraction for "it is". So what you are saying is "I think it is better".

I think "I think it's better" is better. (that's just for fun...)