Pep Guardiola has agreed a three-year contract to become Manchester City manager in the summer.
The 45-year-old, currently in charge at Bayern Munich, will replace Manuel Pellegrini, who will leave on 30 June.
A statement from City said Chilean Pellegrini, 62, was "fully supportive" of the announcement being made.
The club said negotiations with former Barcelona coach Guardiola had been "a recommencement of discussions that were curtailed in 2012".
Roberto Mancini was City boss at the time, and led them to the domestic title that year.
Pellegrini succeeded the Italian in 2013 and took the club to a Premier League and League Cup double the following season.
He has won 64 of his 99 Premier League games as a manager, a record only eclipsed by Jose Mourinho, who won 73 of his opening 99 league matches as Chelsea boss.
This season Manchester City could yet win four trophies under Pellegrini as they are already through to the final of the League Cup and are second in the league behind Leicester City.
The Blues are also through to the knockout stages of the Champions League and will play Chelsea in the fifth round of the FA Cup.
"I talked to the club and I will finish my contract on the original date," said Pellegrini on Monday.
"We signed a contract for one more year, but with a clause that one of the club or me cannot use that extended contract. So I will finish here on the original date.
"They are not doing anything behind me. I knew this a month ago. But I don't think it's good, this rumour and speculation about different things. I would prefer to finish the speculation today. That's why I told the press, I told the players, and I spoke with the club two weeks ago saying that I would do it."
Pre Guardiola was Barcelona's most successful manager with 14 trophies in four years, including three La Liga titles and two Champions Leagues.
After a year out of the game he joined Bayern in 2013, following the club's Champions League, Bundesliga and German Cup treble under Jupp Heynckes.
Guardiola won the league twice in his two full seasons with Bayern, who are eight points clear in his third campaign. He is yet to win the Champions League with the German club and has been knocked out at the semi-final stage twice.
They face Italian giants Juventus in the last 16 of Europe's elite club competition in February and Guardiola said: "Winning the Champions League would make my time here complete."
Liverpool manager Jurgen Klopp spoke to the media before his side's game with Leicester on Tuesday, and said of Guardiola's appointment: "He is one of the best managers in the world, no doubt about this.
"He had two big, big clubs where he has worked at and now he will do his job at Manchester City.
"Pep won everything in Spain, nearly everything in Germany, so I think he wants to win everything in England, that is clear."
Former QPR boss Harry Redknapp told BBC Radio 5 live: "City are fighting on all fronts still, and you wonder what signal it sends out to the players when they know the manager isn't going to be there at the end of the year.
"Pellegrini is an excellent manager and a really nice guy. I'm sure he'll want to go out as a success. It's a massive move for Man City. Guardiola is really a big statement."
Stoke manager Mark Hughes said: "I don't think the news itself was a surprise, maybe the timing of it?
"I think Pellegrini's done a great job. Coming in after Mancini the club seemed a bit fragmented. He's won trophies, which is what they demanded. It's unfortunate that when a manager with the quality of Pep Guardiola comes on the market, a team like Man City feel the need to go after him."
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