The Saudi Arabia striker, 25, had been on trial with Sven-Goran Eriksson's side but said in an official press conference on Saturday that he has decided to stay in his home country with Al Hilal.
"I had a successful trial with Manchester City and I was given great praise from everyone there including coach Sven-Goran Eriksson," said Al Qahtani.
"We had reached an agreement but there were some issues in the contract that were not resolved.
"However, the reason I rejected the offer was not due to financial reasons but because I feel Al Hilal need me too much this season."
Al Qahtani stressed he still has ambitions to play in Europe in the near future.
He added: "I'm still looking to play in Europe and the situation could be different at the start of next season.
"I still have some offers and I will discuss them with the administration and I'm sure that I can succeed in Europe."