English Premier League club Manchester City, owned by Sheikh Mansour of Abu Dhabi, will be the majority partner in New York City Football Club with the Yankees, the biggest name in baseball, an "active member of the ownership group".
"This is another big day for soccer in America," MLS commissioner Don Garber told Reuters.
"We have worked for quite some time on trying to finalise a deal to bring the 20th MLS team to New York City. Two of the biggest, most prestigious and clearly most respected sports organizations in the world are joining together to own this team," he added.
The 'franchise fee' for the new club is around $100 million.
The new club will face a local rival in the New York Red Bulls who play in Harrison, New Jersey and are owned by Austrian energy drink firm Red Bull.
Garber said MLS viewed a new top-flight team in New York City itself as a "transformational" moment for the league.
"This is a big market and represents over 19 million people," he said.
"I think it will be transformational for MLS and for soccer in America. This country is rapidly becoming a very powerful and passionate soccer nation and it is our view that bringing together these two organizations will allow us to continue that tremendous momentum and bring it arguably to the most important city in the entire world," he added.
"VERY, VERY RECENTLY"
Manchester City, who won the Premier League in the 2011/12 season, hope that the Yankees will allow them to tap into expertise in reaching sports fans in New York.
"This is the best of both worlds - we believe we know how to manage a soccer club and the Yankees are a top sports organization in the world and are true New Yorkers," Manchester City chief executive Ferran Soriano told Reuters.
"We have a long term plan for soccer in New York and there couldn't be a better partner," he said.
While City have been working on the details of an MLS franchise for nine months, Yankees president Randy Levine said his organization only joined the process "very, very recently".
"We are really excited. George Steinbrenner, the boss, and the Steinbrenner family, [owners] Hal and Hank Steinbrenner, have long been soccer fans," Levine told Reuters.
"This is a phenomenal opportunity for us, in our home market, to partner with Manchester City, one of the great organizations in the world," he added.
The new team will play at a temporary home in 2015 while efforts to find and build a new stadium are completed.
MLS has already begun discussions with the City of New York about the possibility of constructing a new stadium in Flushing Meadows Corona Park in Queens but other options will also now be looked at.
"I don't think there have been any setbacks [with Flushing Meadows] and I think clearly that is an option," said Levine.
"We just got into this and we are going to sit down with our partners and the commissioner and get the lay of the land and review and see what is the best alternative. This is just to see
