Goal.com understands the fee for the Spaniard is worth a total of £18 million, an initial fee of £15.5m plus an additional £2.5m in potential add-ons.
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The swoop for Garcia makes it a successful transfer deadline day for Roberto Mancini's side, who have also signed Scott Sinclair, Maicon, Matija Nastasic and Richard Wright.
The 25-year-old came through the ranks at Real Madrid, with whom he has had two spells, and has also played for Osasuna in La Liga.
The signing has come too late for Garcia to be considered for selection in Saturday's game at home to QPR, but he will be eligible for selection in the game away to Stoke City after the international break.
The Premier League champions are yet to release any details on the contract length for their new signing, who had to wait until just before the transfer window slammed shut for the paperwork to go through on his switch.
Garcia has been handed the No.14 shirt at the Etihad Staidum for the remainder of the 2012-13 season.