In this article, we introduce the notion of mutation semigroup algebras. This concept simultaneously generalizes cluster algebras and semigroup algebras. We show that, under some mild conditions on the singularities, the spectrum $U={\rm Spec}(R)$ of a mutation semigroup algebra $R$ admits a log Fano compactification $U\hookrightarrow X$. The compactification $X$ can be chosen to be a $\mathbb{Q}$-factorial log Fano variety whenever $U$ is $\mathbb{Q}$-factorial. Furthermore, we prove that a $\mathbb{Q}$-factorial klt Fano variety $X$ is of cluster type if and only if its Cox ring ${\rm Cox}(X)$ is a ${\rm Cl}(X)$-graded mutation semigroup algebra. In order to enlighten the previous theorems, we provide several explicit examples motivated by birational geometry, representation theory, and combinatorics.