In a statement to the House of Commons, Attorney General Jeremy Wright revealed the Government has reached an out-of-court “full and final settlement” with Abdel-Hakim Belhaj and Fatima Boudchar over the UK’s role in their rendition.
Ms Boudchar, who was present in Parliament to hear Mr Wright’s statement on Thursday, will be given £500,000.
In 2012, the couple brought a claim against the UK Government, former Labour foreign secretary Jack Straw and ex-foreign office director Sir Mark Allen.
They alleged the UK was complicit in their abduction, detention and rendition to Libya in 2004, following which they suffered a “harrowing ordeal that caused them significant distress”.
At the time, Libya was ruled by brutal dictator Colonel Gaddafi, whose regime Mr Belhaj was opposed to.
Their rendition came around the same time as ex-prime minister Tony Blair’s controversial “deal in the desert” with Gaddafi.
Ms Boudchar was pregnant at the time of her rendition and gave birth shortly after her release from a Libyan jail in June 2004.
However, Mr Belhaj wasn’t released until March 2010, less than 18 months before the fall of Gaddafi’s regime amid the Arab Spring uprisings.
Revealing the settlement of the legal case, Mr Wright told MPs: “On 3 May, the claims against Jack Straw and Sir Mark Allen were withdrawn.
“Today, I can announce to this House that, following mediation, the UK Government has reached a full and final settlement of Mr Belhaj and Ms Bouchard’s claims.”
Mr Wright paid tribute to the “constructive way” the couple had approached the mediation, adding: “This has been a long-running and hugely complex piece of litigation, which has been difficult for all the individuals involved.”
The Attorney General revealed no admissions of liability have been made by any of the defendants in settling the claims.
The couple have now withdrawn their claims against all defendants, with the Government agreeing to pay the £500,000 sum to Ms Bouchard.
Mr Belhaj did not seek and has not been given any compensation.
Mr Wright told MPs it is “important that we should act in line with our values and in accordance with the rule of law”.
“That means that when we get things wrong it is right and just that we should acknowledge it, compensate those affected and learn lessons,” he added.
“I believe this is such a case.”
Mr Wright has met both Mr Belhaj and Ms Bouchard, while Theresa May has written to them each to apologise.
In a statement issued by his lawyers, Mr Belhaj said: “I welcome and accept the Prime Minister’s apology, and I extend to her and the Attorney General my thanks and sincere goodwill.”
Ms Boudchar said: “I thank the British Government for its apology and for inviting me and my son to the UK to hear it.
“I accept the Government’s apology.”
Mr Straw, who served as foreign secretary between 2001 and 2006, welcomed the withdrawal of proceedings against him.
In a statement, he said: “I recognise that the events they describe will have been deeply distressing for them.
“As foreign secretary I was responsible for approving or authorising a wide range of matters to protect our national security, including by meeting our international obligations to share information with international partners.
“I took these responsibilities very seriously. As I have said on many occasions I sought to act at all times in a manner which was fully consistent with my legal duties, and with national and international law.”
Mr Straw admitted his “recollection of what took place is limited”, but added: “What is clear from what has now been ascertained is that on 1 March, 2004 my approval was sought for some information to be shared with international partners.
“In almost every case such approvals were made by me in writing, on the basis of written submissions to me.
“However in rare cases of great urgency, oral submissions could be made and oral approvals given by me. This is what happened on this occasion.”
Mr Straw’s statement continued: “In every case where my approval was sought I assumed, and was entitled to assume, that the actions for which my approval was sought were lawful.
“This included in appropriate cases obtaining assurances as to the humane treatment of those concerned.
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“This case clearly raises serious issues. However I remain constrained for national security reasons as to what further I can say publicly.”