The City boss claims that the Costa Rican expressed his desire to move to La Liga after Keegan told Wanchope his contract, which had a year to run, would not be renewed.
And the 28-year-old now has his wish after Keegan accepted an offer of £500,000 from Malaga.
"Paulo came in at the end of last season and said that he wanted to go to Spain," the City boss told the Evening News.
"He asked me if I would be offering him a new contract at the end of the season and I said that I wouldn't, that I had discussed it with the board and they weren't prepared to offer him one.
"He said that if we got the right offer, he would like to go to Spain and we got that on Monday from Malaga," reckoned Keegan.
"I reluctantly let him go because of the timing of it. With a week left to get someone in, it is not ideal, but I think it's the right decision for the club and player.
"I will still be looking for new players and we will continue to do that right up until the deadline."
At the top of Keegan's list is still Marseille striker Mido, and Keegan is reportedly set to complete a one-year loan deal for the 21-year-old Egypt international, formerly of Ajax.
- Meanwhile, Dutch goalkeeper Roland Waterreus has completed his move to City as short-term cover for David James. It it thought the 34-year-old - released by PSV in the summer - has been offered a six-month deal.