Marwood had previously been responsible for signing players, but his transfer dealings had been criticised by manager Roberto Mancini over the past two summers.
Begiristain will report to City's chief executive Ferran Soriano - who worked with him at Barcelona.
Begiristain is a former Real Sociedad, Barcelona and Deportivo winger who won 22 caps for Spain.
He ended his playing career in the J-League at the Urawa Red Diamonds, before spending seven years at the Nou Camp as Director of Football.
"I am very pleased indeed to have been offered such an exciting opportunity," Begiristain told the club's official website.
"The progress and on-field achievements at Manchester City are plain for all to see and I am honoured to have been asked to contribute to its future success.
"I am very much looking forward to working with Brian Marwood, Roberto Mancini and Ferran Soriano in continuing to build a football team and philosophy which will serve Manchester City well in the near and long term future."
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