City were handed a two-year ban from Uefa’s competition and a £24.9million fine in February after being found guilty of “serious breaches” of club licensing and Financial Fair Play regulations.
The club swiftly signalled its intention to appeal amid speculation that the punishment could cost it some of its biggest names as well as manager Pep Guardiola, and the Switzerland-based Court of Arbitration for Sport delivered its verdict at 9.30 am BST.
City’s ban was overturned in its entirety, while the fine was reduced by two thirds to £9.87m.
City will instead have to pay a fine of €10m, just under £9m.
It brings to an end their long-running battle with European football’s governing body and removes the cloud that has hung over them since the publication of supposed leaked emails and documents.
City always maintained they were innocent of all charges after they were accused of overstating sponsorship deals to disguise funds being pumped into the club by owner Sheikh Mansour.