The Makkah Clock, which Riyadh says is the world's largest, has four faces measuring 43 meters in diameter.
It sits 400 meters up what will be the world's second-tallest skyscraper and largest hotel, overlooking the city's Holy Grand Mosque, which Muslims around the world turn to five times a day for prayer.
"The Makkah Clock started with the order of King Abdullah ... one minute after midnight on the first day of the holy month of Ramadan," the Saudi Press Agency said.
Over 90 million pieces of colored glass mosaic embellish the sides of the clock, which has four faces each bearing a large inscription of the name "Allah". It is visible from all corners of the city, the state news agency said.
The clock tower is the landmark feature of the seven-tower King Abdulaziz Endowment hotel complex, being built by the Saudi Binladin Group, which will have the largest floor area of any building in the world when it is complete. Local media have said the clock tower project cost $3 billion.
The clock is positioned on a 601-meter tower, which will become the second tallest inhabited building in the world when it is completed in three months' time.
"Because it based in front of the holy mosque the whole Islamic world will refer to Makkah time instead of Greenwich. The Makkah clock will become a symbol to all Muslims," said Hashim Adnan, a resident of Jeddah.
The project is part of efforts to modernize the holy city and make it more capable of catering to pilgrims. Around 2 million Muslims visit the city each year for the annual Haj pilgrimage, a once-in-a-lifetime requirement for able-bodied Muslims, and 3.5 million pilgrims visit Makkah at other times of the year.