Whitley, who was recently loaned to Notts County for three months, played 86 League games for the club during his seven year spell.
"An agreement has today been reached between Manchester City Football Club and player Jeff Whitley, that his contract and registration with the club will be cancelled with immediate effect," said a statement on the club's official website on Friday.
"With two weeks remaining until the transfer deadline and having not featured in the Manchester City team for some time, it has been decided that in the interest of Jeff's career and to enhance his prospects of finding a new club offering the chance of more regular first-team football, he will be freed by Manchester City and assume unattached player status."