The volatile Italian striker, who was fined by City after a series of well-documented misdemeanors on and off the pitch last season, had been due to have his case heard by a Premier League panel on Wednesday but the hearing was canceled.
"After amicable talks between the parties, as a sign of respect for (coach) 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," a City statement said.
"Mario remains available for selection for all forthcoming fixtures."
Despite the 22-year-old Balotelli's decision to end his dispute and agree to a 340,000 pounds ($550,000) fine his relationship with the club and Mancini appears to be at breaking-point.
The player who former Inter Milan boss Jose Mourinho once branded "unmanageable" was left out of the squad against Newcastle United last weekend after being hauled off in the defeat by Manchester United the week before.
While he has occasionally justified the faith Mancini showed when signing him from Inter for 22 million euros in 2010, Balotelli's goals have been overshadowed by rash tackles, tantrums and bizarre off-field antics such as setting fire to his house after letting off fireworks in his bathroom.
"When you have a player of this quality you can't understand that he could continue to throw this out of the window. This is incredible," Mancini told reporters after City's 3-2 loss against United earlier this month.
The club's patience snapped last season when Balotelli missed 11 of City's 54 competitive games through suspensions, the last of which followed a red card against Arsenal in April.
Balotelli has managed just one Premier League goal this season, although Mancini has continued to support him, playing down suggestions that he may leave in January.
($1 = 0.6155 British pounds)
(Reporting by Martyn Herman, editing by Ed Osmond)