The Italy international's lawyers were due to present their case to a Premier League tribunal on Wednesday, who were due to hear his appeal against a club fine.
Press Association Sport understands City imposed a fine of two weeks' wages - a figure reported to be around £340,000 - on Balotelli last season for on-field indiscipline, causing his unrest.
But a brief statement from City on Wednesday read: "After amicable talks between the parties, as a sign of respect for Roberto Mancini, the supporters and the club, Mario Balotelli has chosen to accept a two week fine levied upon him by the club and withdraw his disciplinary appeal, which was due to be heard by a Premier League panel today.
"Mario remains available for selection for all forthcoming fixtures."
Balotelli had exercised his right to take his fight to a league panel after failing to overturn the sanction through City's internal appeals process. The hearing was due to take place at an undisclosed location in London, with details of who would be present also sketchy.
Balotelli, 22, missed 11 competitive matches through suspension last season as a result of three red cards - one from the previous campaign - and one retrospective punishment. That was also in a season in which he courted controversy for numerous off-field matters.
News of the fine emerged this week and has fuelled further speculation that the player could leave the Etihad Stadium in the January transfer window.
Balotelli's form this season has generally been under scrutiny having scored just one goal in the Premier League. He was omitted from the squad by manager Roberto Mancini, for the second time in just over a month, for Saturday's victory at Newcastle.
Mancini also voiced fears the player's talent could go to waste after an ineffectual performance in the derby loss to Manchester United. Balotelli, signed for £24million from Inter Milan in 2010, has been linked with a return to the San Siro with AC Milan but his agent has consistently denied he wishes to move.
- Sports & Recreation
- Roberto Mancini
- Premier League