The 24-year-old, once tipped as a future England international, had become a forgotten man at the Etihad Stadium after his progress was hampered by a succession of injuries.
Johnson had not played for the club since October 2009 and a loan spell at Leicester last season was cut short.
With the player understood to be short of fitness, City reached an agreement over the remainder of his contract, which was due to expire at the end of the current campaign.
Johnson, a former Everton youth team player, broke into the City first team at the age of 18 in 2006.
Such were his performances that he was once linked with a big-money move to Liverpool but injuries, including a ruptured cruciate ligament, prevented him building on the promising start to his career.
After falling way down the pecking order, he joined Leicester on a season-long deal in 2011 but he made only three Championship starts before the move was terminated.
He was twice arrested for drink-driving last year, leading to a three-year driving ban and fines totalling £5,500, and in recent times there were rumours he lacked the dedication required of a top-flight footballer.
City did not publicise news of Johnson's release but have confirmed he left the club early in December.
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