Inspectors ruled that the city's results had been tainted since at least 1998 because they did not include up to 7 per cent of its pupils.
A missing group of up to 300 15 and 16-year-olds each year had been removed from registers at least six months before the exams and were receiving little or no schooling.
The findings were uncovered in a re-inspection of the local authority which concluded that it was making progress in tackling a catalogue of problems unearthed in a previous inspection two years ago.
The report said the practice of removing non-attenders probably began more than two years ago - but that it had only been uncovered after the authority launched an investigation.
Yet Manchester had allowed the practice to continue, and even legitimised it,by creating a central register to place such pupils on a work-experience programme.
As a result, the authority's performance in every GCSE indicator was "inflated". Schools' results were also affected.
David Johnston, chief education officer, said the authority had been right to investigate the problem and then launch the work-experience programme - attended by more than 200 pupils this year.
He added: "The notion that this is the only city in the country where pupils are off-roll is a hard one to grasp."
The inspectors' report concluded that the Labour-controlled authority was no longer "beset with problems".
The appointment of Mr Johnston in December 1998 had led to a "significant change of culture", and the council had made strong progress in at least nine areas of responsibility.
However, this success was "still not sufficient" - particularly as schools themselves had yet to register significant improvements.