The Algeria international has penned a three-year contract, with an option for a fourth year, after an agreement was struck last week.
City agreed to sell Mahrez and allowed him to stay at home as they flew off to Asia on a pre-season tour last Sunday.
Al Ahli were prepared to meet their asking price of £30m while the 32-year-old had two years left on his contract at the Etihad.
The winger signed from Leicester in 2018 for £60m and helped City win the treble last season, scoring 15 times in 47 appearances.
But he was not happy with Pep Guardiola after being benched in both FA Cup and Champions League finals.
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He did not even play a single minute in either game, something that has rankled over the summer and helped make his decision to depart.
Mahrez told the treble winners' website, mancity.com: "To play for Manchester City has been an honour and privilege.
"I came to City to win trophies and enjoy my football and I achieved all that and so much more.
"I have had five unforgettable years with this football club, working with unbelievable players, fantastic supporters, and the best manager in the world.
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"Manchester City will forever be a huge and happy part of my life."
Mahrez is the latest Premier League star to swap life in England for Saudi Arabia after an aggressive push from the nation to snap up big-name players.
Jordan Henderson has also left this week to reunite with Steven Gerrard at Al Ettifaq, penning a £700,000-a-week contract, as Liverpool made £12m off the deal.
Karim Benzema, N'Golo Kante, Sergej Milinkovic-Savic, Ruben Neves and Kalidou Koulibaly are also just a handful of the top stars to depart for the Gulf State.
Mahrez will join up with Edouard Mendy and Roberto Firmino as the other Premier League players to make the move to Al Ahli.
And he might not be the only high-profile exit at the Etihad this summer.
Kyle Walker has been strongly linked with a move to Bayern Munich while Bernardo Silva's future is also up in the air.
Aymeric Laporte is another that could leave but all three have travelled with the squad on their pre-season tour.
Who Guardiola finds to replace Mahrez remains to be seen but there is interest in Crystal Palace star Michael Olise.
The 21-year-old registered 11 assists in the Premier League last season - the most for a player his age in Europe's top five leagues.
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Chelsea are also keen on the Frenchman, who spent time in their academy.
But should City firm up their interest, the winger could pick City over the Blues due to their status as England's dominant club.