The midfielder was confident he had played his last game of football when he played just two minutes in Arsenal's final game of the 2015-16 season - just his ninth appearance in the English top flight in that campaign.
Speculation had been building around the 34-year-old's future towards the end of the season, with reports linking him to a background role at City.
And the former Spain international has confirmed that his playing career has ended and he will be working with Guardiola at the Etihad Stadium next term.
"I can confirm that I will be leaving Arsenal and retiring from playing to take up a coaching position at Manchester City," he said in a statement released on Twitter.
"I've enjoyed an amazing five years at Arsenal and it's been an honour and a privilege to captain such a great club.
"The opportunity to join Pep Guardiola and his team was an amazing opportunity for me and I am incredibly excited for the future.
"Throughout my career I have always been interested in more than just the playing side and have had a passion for helping progress and develop the team outside of just my own role as a player.
"I have been lucky to play under some amazing coaches and managers during my playing career and I hope to use elements of everything I've learnt from them as well as experience from my own playing career to help City achieve success."
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