City took the lead in contentious circumstances, David Silva’s 29th-minute strike allowed to stand despite Raheem Sterling’s attempt to play the ball from an offside position.
But there were no complaints with the hosts’ second as Gabriel Jesus stroked a penalty home after Yohan Benalouane’s clumsy foul on Leroy Sane.
Shinji Okazaki’s sumptuous volley reduced the arrears before half-time and Leicester thought they had snatched a point when Riyad Mahrez converted a 76th-minute penalty.
But referee Robert Madley spotted Mahrez had struck the ball twice and disallowed the goal as City clung onto a victory that moved them up to third in the Premier League.
Leicester, who see a two-game winning streak come to an end, remain ninth on 43 points.
Five years on from his dramatic title-winning goal against QPR, there was no starting spot for Sergio Aguero as Pep Guardiola, in the wake of City’s thumping victory over Crystal Palace, named an unchanged side for the first time this season.
Andy King and Ben Chilwell replaced injured Leicester duo Danny Drinkwater and Robert Huth, whose absence saw Christian Fuchs deputise at centre-back.
And it took Guardiola’s men just four minutes to penetrate the makeshift Leicester defence, Fernandinho escaping Danny Simpson but heading Kevin de Bruyne’s corner wide.
But it was not just the visitors who showed defensive frailties as the unmarked Wilfred Ndidi glanced Marc Albrighton’s corner over on eight minutes.
The breakthrough finally came shortly before the half-hour mark as Silva stroked Sane’s cut-back beyond a stricken Kasper Schmeichel.
Sterling tried to help the effort on its way from an offside position, sparking mass protests from the Leicester players but, after consulting with his linesman, Madley awarded the goal.
One soon became two as Benalouane sent Sane flying in the area and Jesus, after denying Yaya Toure the chance to score on his birthday, coolly converted from 12 yards.
City, strolling towards the break with a two-goal lead, were stopped in their tracks as Okazaki spectacular improvised volley cut the hosts lead three minutes before the interval.
And, after a subdued first-half display, the goal breathed life into the Foxes, Albrighton drawing Willy Caballero into action with a scuffed 49th-minute effort.
After Fuchs blocked Sterling’s goal-bound effort on 70 minutes, the visitors had a glorious chance to equalise when the second penalty of the game was awarded after Gael Clichy’s foul on Mahrez.
However, in bizarre circumstances, an eagle-eyed Madley correctly disallowed the goal after Mahrez slipped and struck the ball twice.
Leicester maintained their threat deep into ten minutes of added time but Jamie Vardy’s near-post flick was the closest they came as City signed off their season at the Etihad with a victory.
