New York City Football Club will become the 20th club in MLS in 2015 after a deal worth around 100million US dollars (£66million) was concluded.
The two clubs and MLS announced the partnership after a meeting at the league''s headquarters in central New York.
City hope the arrangement will help to expand their profile in the United States, while it is also a potential extra source of income and players.
City chief executive Ferran Soriano said: "New York is a legendary sports town, as well as a thriving global city with a rapidly expanding soccer fanbase.
"We are thrilled to contribute to the energy and growth of New York City soccer.
"In the Yankees, we have found the absolute best partner for developing a world-class sports organisation and a winning team that will carry the New York City Football Club name with pride."
City will be the majority owner of the new venture, with the Yankees, who previously had a commercial agreement with Manchester United, being an active member of the ownership group.
The new club does not presently have a home but discussions are under way over the construction of a new stadium at Flushing Meadows in the Queens borough of the city.
They will play at a temporary location until a development is completed.
MLS commissioner Don Garber said: "We proudly welcome two of the most prestigious global sports organisations to Major League Soccer.
"This is a transformational development that will elevate the league to new heights in this country."
City are currently in the US ahead of post-season friendlies against Chelsea in St Louis and New York.
New York City will operate as a separate entity to Manchester City, although there will inevitably be close links between the teams.
Soriano will now begin the process of putting in place a separate administration for the new entity, which will in turn appoint coaching staff and begin player recruitment.
Manchester City''s possible expansion into the MLS was rumoured last month, although it was suggested it would be more of an enterprise undertaken by owner Sheikh Mansour rather than the club itself.
The involvement of the Yankees builds on a partnership City already have with baseball''s most famous club through Legends Hospitality, an international catering organisation.
City are also due to play at Yankee Stadium (pictured) in their second match against Chelsea on Saturday.
The Yankees will not be involved in the football side of the business but will bring their considerable commercial expertise to the operation.
Hal Steinbrenner, managing general partner of the New York Yankees, said: "We look forward to the opportunity to work with Manchester City to create something very special for the soccer fans of New York - and to bringing another terrific team to this city for all sports fans to enjoy."