Liverpool manager Brendan Rodgers refused to deny his club are attempting to sign PSV winger Memphis Depay.
The 22-year-old Norway Under-21 international, who recently voiced his frustration at a lack of first-team opportunities at the Etihad Stadium, has been linked with a move to Olympiacos this month and has also reportedly been monitored by other Premier League clubs.
Ibrahim joined City in 2007 but made just three first-team appearances, all in 2010, including one off the bench in a Premier League game against Liverpool in February that year.
A statement on City's Twitter account read: "The club can confirm that Abdisalam Ibrahim has been released from his contract. We wish him well for the future."