City were ordered to play in last year's Champions League with only 21 players in the squad and spending on new signings in last summer's transfer window was capped at £49million as punishment for breaching FFP rules
The club also agreed that total wages last season's Champions League squad must not exceed that of the 2013/14 season.
The club were also fined £16.3million a year for three years totalling £49million but only the first year's fine has been imposed
City's settlement agreement with UEFA means they still have to hit targets they agreed with the European governing body for 2016.
UEFA's club financial control body (CFCB) has announced the lifting of the restrictions for both City and for Paris Saint Germain, who were given the same sanctions last year.
UEFA said in a statement: "The UEFA CFCB has lifted a number of restrictions on transfer activity, employee expenses and number of players in UEFA club competitions imposed on Manchester City FC after the club reached certain targets towards break-even compliance as part of the ongoing monitoring of their settlement agreement.
"The lifting of restrictions is subject to ongoing additional controls and audits.
"The club remains under strict monitoring and has still to meet break-even targets and is therefore subject to some limitations in 2016."
Meanwhile, UEFA has also confirmed the amount clubs are permitted to lose over three years is being cut from 45million euro to 30million euro from the 2015/16 season
UEFA said: "The reduction has always been part of the evolution process of FFP and goes hand-in-hand with the other revisions that have been made in the updated regulations to strengthen FFP for European club football's long term future."
Clubs will be permitted a period of accelerated spending on players however if they present a sustainable business model and can prove they are not gambling on success.
Source : PA
Source: PA