Benarbia leaves City and quits football
The Algerian international skippered The Citizens for the first half of their friendly at Mansfield Town on Saturday but then decided he would leave the club and retire from the game.
City boss Keegan agreed to paying up the final year that remained on his contract, and he will not travel with the squad for their pre-season tour of Denmark.
Benarbia became a huge fans` favourite after helping the club into The Premiership, and the African playmaker had said he was relishing the chance to play at the City of Manchester Stadium.
The arrival of Trevor Sinclair has increased Keegan's options in midfield and the 34-year-old's departure could free up another place for the former England manager to make one more swoop.
Keegan had said that he wanted to add another midfielder to his ranks, and both Paul Bosvelt and Antoine Sibierski have been linked with moves to Manchester.
Benarbia's decision to leave will be a blow to Citizens fans who have come to love the tricky midfielder, but it could signal the arrival of yet another new faces in the City ranks.
Bernabia explained the decision to leave City and quit the game to the club's official website.
"This is a decision I have thought about very carefully," he said.
"My aim when I joined MCFC was always to help the team gain promotion, and then to become established in the Premiership.
"I believe that we have done this, particularly after our ninth placed finish last season.
"I also wanted to finish my career on a high, knowing that I have played my best and done justice to myself and the team.
"My concern is that I would be unable to sustain the level required for another season in the Premiership.
"I cannot think of a better club at which to finish my competitive career, and my thanks go out to the Manchester City fans, who quite honestly have been the most amazing I have ever played for.
"I would also like to say a big thank you to Kevin Keegan and the team for all their support and everything they have done for me.
"I wish them all the luck in the coming season."