Cabinet ministers will resume considering David Bain's bid for compensation, which stalled almost two years ago.
Mr Bain asked for his claim to be put on hold while he sought a judicial review of how then-Justice Minister Judith Collins had handled it.
He has now dropped those proceedings, following a confidential agreement with new Justice Minister Amy Adams.
"With the matter resolved, Cabinet can now resume its consideration of Mr Bain's claim for compensation for wrongful conviction and imprisonment," Ms Adams said.
"While the details of the agreement are confidential, I can confirm that there was no contribution made towards Mr Bain's compensation claim as part of this discontinuance."
Ms Adams will now discuss the next steps with Cabinet and make a further announcement in due course.
Mr Bain spent 13 years in prison for the murders of his family in 1994 but was found not guilty at a retrial in 2009.
In a report released in late 2012, a former Canadian Supreme Court judge, Ian Binnie, concluded that Mr Bain was innocent and suggested he should receive compensation.
However, Ms Collins then sought a review of that report, which criticised the findings as legally flawed.
Mr Bain's legal team sought a judicial review, arguing that Ms Collins had pre-determined the claim and could not distinguish between her role as Justice Minister and her previous role as Police Minister.
Ms Collins resigned as a minister during the election campaign last year, after an email surfaced suggesting she had been part of efforts to undermine the head of the Serious Fraud Office in 2011. An inquiry later found no evidence to support that.
Bain looking forward to resolution - Karam
Mr Bain's chief supporter Joe Karam told Checkpoint it was now up to Ms Adams to have the claim considered by Cabinet ministers.
"We have no reason to believe that she won't do a proper just job, as Simon Power did. The only thing that's gone wrong is the pugnacious minister that we had in between times."
Mr Karam said Mr Bain was looking forward to the matter being resolved.