All 27 Vanuatu police officers who were suspended last week have been reinstated.
Seven of the group last week were charged with mutiny or inciting mutiny, while the remaining 20, including the previous acting commissioner, Holi Simon, are likely to face similar charges this week.
The arrests raised security fears in the capital, Port Vila, with the Australian government advising its nationals to be cautious.
Mr Simon, whose complaint about the way Mael Apisai was appointed police commissioner led to the arrests, says a custom settlement was held over the weekend to diffuse the tensions.
Mr Simon says the settlement did not consider the mutiny charges and he says the officers are expected to be charged this week.
But he says the Prime Minister agreed to lift the suspensions on all 27 officers, and they will return to work ahead of a court hearing expected this Friday.
Mr Simon, who had been the acting police commissioner, says he will return, in the interim, as the assistant commissioner of operatons.
He also says part of the settlement was an agreement to set up a new Police Services Commission to consider applicants for Police Commissioner, following the quashing of Mael Apisai's appointment.