MLS commissioner Don Garber said the team's owners were attracted by the chance to play in front of an ethnically diverse population willing to support a soccer team.
San Jose officials had worked to keep the team from leaving, and even considered subsidising a new stadium.
The Earthquakes' current owner, Anschutz Entertainment Group, had expressed previous interest in moving the team to Houston.
USA TODAY reports that the Group was unhappy with the condition of the Spartan Stadium on the campus of San Jose State University and with the team's share of proceeds from parking and concession fees.
San Jose will keep the Earthquakes team name, logo and colours, and the city has already signed a letter of intent in the hope of attracting a MLS expansion team, perhaps as early as 2007.
