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.
Labour and the Conservatives have joined forces to form an administration in Aberdeen.