Benoit Tremoulinas pulled one back for last year's Europa League winners but Wilfried Bony put City back in control before the break and they eased to a victory that puts them top of Group D.
The draw between Borussia Monchengladbach and Juventus in the group's other fixture meant that City had ensured qualification with two games to spare. After their past struggles in the competition, this was a landmark moment for City under Pellegrini.
Pellegrini raised some eyebrows in his selection as he left in-form Kevin De Bruyne on the bench, but his decision to play Fernando in midfield, allowing Fernandinho and Yaya Toure to push forward worked superbly.
They made a blistering start as a result with Fernandinho twice going close in the opening minutes, first testing Sergio Rico and then shooting wide. Bony also drove a shot across goal before City went ahead with just eight minutes gone.
Fernandinho was the architect with a defence-splitting pass and Sterling raced through to finish with composure from a difficult angle.
City did not relent and they claimed a second three minutes later as Sterling seized possession and broke down the left to tee up Bony. Rico parried the Ivorian's shot but the rebound looped into the air and the irrepressible Fernandinho followed up to head home.
Former Sevilla star Jesus Navas almost added another after a strong run down the right but Rico tipped his powerful low drive onto the post.
Sevilla also contributed to a breathless opening and they should have had one back after Vicente Iborra headed dangerously across the City box but Fernando Llorente volleyed over.
Navas saw another shot saved by Rico and Toure had an effort blocked but Sevilla did reply as Coke skipped into the area and crossed for Tremoulinas to head in.
Joe Hart then produced a brilliant save to keep out a Timothee Kolodziejczak header on the line and Iborra slammed the rebound into the side-netting.
It was a worrying spell for City but they soon recovered their composure and reasserted their grip on the game through Bony after 36 minutes.
Navas, revelling back on his old stomping ground, was the provider after a good run down the right and Bony tucked away his shot coolly from in front of goal.
City's pace, perhaps inevitably, dropped after the break but they continued to probe. Sterling remained dangerous and twice jinked across the area. He first set up Fernandinho to shoot at Rico before he tested the keeper himself.
Another chance came as Toure combined well with Bony but then curled his shot wide. Bony had another effort blocked as City continued to create the better chances in a dominant performance.
Such was City's superiority, Pellegrini was even able to give Fabian Delph a run-out in the closing minutes to step up his comeback from injury.
While progressing from the group stage has been a major hurdle for City in the past, last season they made it through only to face Barcelona in the first knock-out stage and duly made a swift exit. With that in mind, captain Vincent Kompany is keen for them to build on their progress so far and top the group in the hope of an easier draw.
"The first feeling is 'Finally'," he said on BT Sport 2 as City could enjoy a truly special performance in Europe. "It's a difficult group and for us to qualify with two games to go is an incredible achievement.
"We need to go on. It would be a first for us to finish first in our group and that's important because we have been unlucky in the draws before."
Manager Manuel Pellegrini changed his team's shape by leaving out De Bruyne in order to feature Fernando, Fernandinho and Toure together in midfield, and enjoyed the results after revealing he had not been impressed with some of City's recent play.
"I'm happy with the way we played, we scored three goals, missed three of four clear chances to score and we defended well," he said.
"I was not happy with the way we were playing in the previous games, so I'm happy with our form in this game.
"The three midfielders - Yaya Toure, Fernandinho and Fernando - played well, pressed higher and our attack was really prepared. We played with one touch and moved into space, that was the reason we created so many chances."
TWEET OF THE MATCH
"What a brilliant display by the whole team today! Let's keep growing strong in the Champions League! C'mon, City!" - Injured City forward Sergio Aguero (@aguerosergiokun) liked what he saw from his sofa.
Sergio Rico: 5 (out of 10)
Adil Rami: 6
Timothee Kolodziejczak: 6
Benoit Tremoulinas: 6
Vicente Iborra: 7
Grzegorz Krychowiak: 6
Ever Banega: 6
Yevhen Konoplyanka: 6
Fernando Llorente: 7
Michael Krohn-Dehli: 6
Mariano Ferreira: 6
Ciro Immobile: 6
Joe Hart: 6
Bacary Sagna: 6
Vincent Kompany: 7
Nicolas Otamendi: 7
Aleksandar Kolarov: 6
Yaya Toure: 7
Jesus Navas: 7
Raheem Sterling: 8
Wilfried Bony: 7
Kevin De Bruyne: 6
Fabian Delph: 5
Martin Demichelis: 5
Fernandinho. The Brazilian looked in the mood from the outset. Inside the the first 11 minutes he twice went close to opening the scoring, set up the first for Raheem Sterling and then headed the second. He could not maintain such a ferocious pace but troubled Sevilla throughout.
MOMENT OF THE MATCH
Raheem Sterling's opening goal after just eight minutes set the tone for a superb contest. The former Liverpool man finished superbly from a tight angle from a well-weighted pass by Fernandinho. It was his first Champions League goal and another positive indicator of the dangerous player he can become for City.
VIEW FROM THE BENCH
City manager Manuel Pellegrini made a big call for the game against Sevilla a fortnight ago as he left out Vincent Kompany, and he made another as he named in-form Kevin De Bruyne on the bench. But the decision was vindicated within minutes as the deployment of Fernando in deep role allowed Fernandinho to step up and stamp his authority on the game.
MOAN OF THE MATCH
It would seem churlish to criticise City after such a superb performance, but they still do not look right in their florescent green - or ghostly, as some fans have dubbed - kit. It does not seem an outfit likely to strike fear into opponents before kick-off. That said, they could change that with more displays like this.
WHO'S UP NEXT?
Aston Villa v Manchester City, November 8 (Premier League)
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