He won 11 trophies with the club including four Premier League titles, two FA Cups, five League Cups and three Community Shield trophies.
"David Silva is a transformational player; a quiet leader who has acted quietly and deliberately and inspired everyone around him, from the youngest academy player to his senior teammates over the past 10 years," City chairman Khaldoon Al Mubarakn said in a statement.
"He has put a stamp on the team, on this club, its history and even the Premier League as a whole. In doing so he has been instrumental to the beautiful football philosophy you see today. He was the start of it."
City announced in 2019 that a similar statue would be erected of former City captain Vincent Kompany and both statues are set to be unveiled in 2021.
Capped 125 times by Spain, Silva won the World Cup in 2010 and the European Championship in 2008 and 2012.
He told ESPN last year that he would like to end his career playing for Las Palmas, his hometown club on the island of Gran Canaria.
"Ten years for me is enough. It's the perfect time for me," he said of his departure.
"Initially, City were talking about two years, but I decided to sign [for] another one, so I finished at 10 years.
"It completes the cycle. It's a nice round figure. I can never see myself playing against City for another team. So 10 years -- that's it."