The 32-year-old striker's contract expires at the end of the season and he has been told it will not be renewed.
The Argentine, who signed from Atletico Madrid in 2011, has scored 257 goals in 384 appearances for the club.
"With the guidance of the owners and the contributions of many players, we earned a place among the greatest of the world," Aguero said.
He will be honoured by a statue at Etihad Stadium, alongside title-winning captain Vincent Kompany and influential playmaker David Silva, who left the club in 2019 and 2020 respectively.
Football Daily podcast: Monday Night Club - farewell Sergio, and Micah's bingo
The trio played leading roles in City's renaissance, with Aguero famously scoring the injury-time winner against QPR in 2012 which clinched the club's first English title in 44 years.
Since then, the striker has helped City win three more Premier League titles, one FA Cup and five League Cups.
"Sergio's contribution to Manchester City over the last 10 years cannot be overstated," City chairman Khaldoon Al Mubarak said.
"His legend will be indelibly etched into the memories of everyone who loves the club and maybe even in those who simply love football."
Several of Aguero's past and present City team-mates - including Raheem Sterling and Aymeric Laporte - responded to his Instagram post announcing the news
'A new stage with new challenges will begin' - what now for Aguero?
Aguero has played a peripheral role this season, in part because of injury and illness, as City chase a quadruple of Premier League, Champions League, FA Cup and League Cup.
In 14 appearances, of which he has started nine games, Aguero has scored three goals.
However, former City defender Micah Richards - who won the title alongside Aguero in the 2011-12 season - thinks the Argentine still has a lot to offer.
"Unless you get [Kylian] Mbappe, [Erling Braut] Haaland or [Harry] Kane, what striker are you going to get to replace him? You get another year out of him," Richards told BBC Radio 5 Live's Monday Night Club.
"We don't know the full details - he might want to leave. But if he is being forced out, that's another story."
Aguero has been linked to several of Europe's top clubs in recent months, with his contract running down and an exit looking likely before being confirmed on Monday.
Spanish giants Barcelona are reported to be potential suitors, with French champions Paris St-Germain, plus Italian duo Juventus and Inter Milan, also credited with interest.
Last week, Chelsea were said to be monitoring Aguero's situation and ready to move if the Argentine decided to stay in the Premier League.
"I will continue to give it my utmost for the rest of the season to win more titles and bring more joy to the fans," Aguero added in a statement announcing his exit.
"Then, a new stage with new challenges will begin and I am fully ready to face them with the same passion and professionalism that I have always dedicated to continue at the highest level."
'Even a month ago, Aguero thought he could stay' - analysis
Simon Stone, BBC Sport football reporter
This is major news - even if it had been half expected given Aguero's lack of game time.
The prolific striker has made only 14 appearances this season, partly through injury but even after recovering from the knee problem that ruled him out of the end of last term, he has regularly been overlooked as manager Pep Guardiola opted to select either Gabriel Jesus in the number nine role or play without an orthodox striker altogether.
As Guardiola is known to want a striker for next season and has already been heavily linked with Borussia Dortmund's prolific forward Erling Braut Haaland, it was obvious keeping Aguero was not certain, even though as recently as a month ago, sources close to the player felt it was possible he could stay.
Now the club has confirmed that will not happen, it will be fascinating to see where he ends up.
Barcelona have previously asked about Aguero's availability and given the constraints around their finances, it cannot be ruled out that is where the 32-year-old will end up, especially if the club are successful in persuading Lionel Messi to stay.
How Aguero has become one of the Premier League's greatest
Former England right-back Richards added his former team-mate is "arguably the best ever striker to grace the Premier League".
Aguero is the fourth highest goalscorer in Premier League history, with his tally of 181 putting him behind only former England internationals Alan Shearer (260), Wayne Rooney (208) and Andrew Cole (187).
However, the Argentine leads the statistics when it comes to the rate of scoring in the English top flight since 1992.
Best minutes-to-goal ratio in PL history
Player Mins/per goal Goals
Sergio Aguero 108.3 180
Thierry Henry 121.8 175
Harry Kane 123.1 157
Mohamed Salah 127.8 92
Ruud van Nistelrooy 128.2 95
Minimum 20 goals
This season Aguero has scored just one Premier League goal and been forced to settle for a place on the City bench in their biggest games.
Earlier this month, he scored his first top-flight goal since January 2020 in a 3-0 win at Fulham.
On Aguero's planned exit, Richards added: "I could see rumbles of this happening at the start of the season, to be honest.
"I know he has had problems with his knee but even when he has been fit he has not been starting. He has been on the bench for a lot of games."
Last season, his return of a goal on average every 90.9 minutes was the second best figure he has achieved during his City career.
Aguero's season-by-season stats (all competitions)
Season Games Mins Goals Mins per goal
2011-12 48 3,477 30 115.9
2012-13 40 2,711 17 159.5
2013-14 34 2,289 28 81.8
2014-15 42 3,198 32 99.9
2015-16 44 3,520 29 121.4
2016-17 45 3,500 33 106.1
2017-18 39 2,934 30 97.8
2018-19 46 3,368 32 105.3
2019-20 32 2,091 23 90.9
2020-21 14 453 3 151
'One of the all-time greats' - social media reaction
Former Liverpool, Manchester City and England striker Robbie Fowler, who is just behind Aguero in the Premier League's all-time leading scorers: "Some player .... deserves every accolade he'll get, will miss watching this legend in the Premier League."
Michael Owen, another former Liverpool and England striker among the league's top scorers: "One of the Premier League's all-time greats, Sergio Aguero set to leave Man City at the end of the season. What a player. He's been an absolute joy to watch."
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