Labour had the most councillors on the city council after last week's elections.
BBC Scotland revealed that as well as the Conservatives the coalition will rely on the support of three Independents. Labour's Barney Crockett will be the new council leader.
The SNP and Lib Dems will form the opposition on the council.
A new Independent-Conservative administration will run Moray Council.
The Independent councillor for Keith, Stewart Cree, has been chosen as council convener.
Meanwhile, the leader of the SNP group on Aberdeenshire Council has fought off a challenge to her leadership.
At the group's AGM on Tuesday, Joanna Strathdee was ousted as leader by Rob Merson.
BBC Scotland understands that Mr Merson was in post for about an hour before resigning, to be replaced by the former leader.
The SNP is the biggest party in Aberdeenshire and is continuing negotiations to form a coalition.

Eskinder Nega was awarded the Pen America's "Freedom to Write" annual prize for publishing articles critical of Ethiopia's human rights record.
His wife Serkalem Fasil, who is a journalist and also spent time in jail, received the award on his behalf.
In the past decade, more journalists have fled Ethiopia than any other country, press freedom groups say.
"I accept this award on behalf of Eskinder Nega at a time when freedom of expression and press freedom are at the lowest in Ethiopia," Ms Serkalem said on Tuesday night in a ceremony in New York.
"If Eskinder were standing here, he'd accept this award, not just as a personal honour, but on behalf of all Ethiopian journalists who toil under withering conditions today: Those who went into exile over the yearsâ€¦ those in prison with whom he now resides," she said.
Mr Eskinder has been in Maekelawi prison in the capital, Addis Ababa, since his arrest in September last year.
He is being tried under Ethiopia's anti-terrorism laws - which criminalise commentary that is critical of the government - and could face the death penalty if he is found guilty.
He had published a column questioning the government's claim that a number of journalists it had detained were suspected terrorists, and for criticising the arrest of well-known Ethiopian actor and government critic Debebe Eshetu.
Mr Eskinder is "that bravest and most admirable of writers, one who picked up his pen to write things that he knew would surely put him at grave risk", said Peter Godwin, president of the Pen American Center.
"Yet he did so nonetheless. And indeed he fell victim to exactly the measures he was highlighting," Zimbabwean-born writer Mr Godwin added.
The Pen award is given to writers who have been persecuted or imprisoned for exercising the right to freedom of expression.
Mr Eskinder opened his first newspaper in 1993, and has been detained at least seven times by the government of Prime Minister Meles Zenawi.
He was stripped of his licence to work as a journalist in 2005, but continued to write for the US-based news forum EthioMedia, which is banned in Ethiopia.
He and his wife Ms Serkalem were both jailed in 2005 for criticising the government's violent crackdown of protests following disputed elections.
During their 17 months in prison, Ms Fasil gave birth to their son.
Correction 27 June 2012: This report has been amended to clarify that Eskinder Nega was not found guilty of anti-terrorism charges in January.

A selection of your pictures of Scotland sent in between 23 and 30 June. Send your photos to scotlandpictures@bbc.co.uk or via Instagram at #bbcscotlandpics
Labour and the Conservatives have joined forces to form an administration in Aberdeen.
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An imprisoned Ethiopian journalist and blogger has been given a prestigious freedom of expression award.
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