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.
Mrs Boudchar, who was present in Parliament with her son Abderrahim 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 – a politician and former leader of the Libyan Islamic Fighting Group – was opposed to.
Their rendition, following their seizure in Bangkok, Thailand, came around the same time as ex-prime minister Tony Blair’s controversial “deal in the desert” with Gaddafi.
Mrs Boudchar was pregnant when detained and gave birth shortly after her release from a Libyan jail in June 2004.
However, Mr Belhaj was not released until March 2010, less than 18 months before the fall of Gaddafi’s regime amid the Arab Spring uprisings.
He alleges he was tortured during his detention.
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the settlement of the legal case, Mr Wright told MPs: “On 3 May, the claims against Jack Straw and Sir Mark Allen were withdrawn.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 Mrs Bouchar’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The couple have now withdrawn their claims against all defendants, with the Government agreeing to pay the £500,000 sum to Mrs Bouchar.
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.
He described how the events took place after the September 11 terror attacks in New York in 2001, which had left the UK “suddenly adapting to a completely new scale and type of threat”.
Mr Wright has met both Mr Belhaj and Mrs Bouchar, while Theresa May has written to them each to say the UK Government is “profoundly sorry”.
The Prime Minister wrote: “What happened to you is deeply troubling. It is clear that you were both subject to appalling treatment and that you suffered greatly, not least the affront to the dignity of Mrs Boudchar, who was pregnant at the time.
“The UK Government believes your accounts. Neither of you should have been treated in this way.”
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.”
Speaking outside Parliament, Mrs Boudchar said: “This is an historic day for us. The British Government apologised to us for what we’ve been through. We’ve waited for six years for this apology.”
Mr Straw, who served as foreign secretary between 2001 and 2006, welcomed the withdrawal of proceedings against him.
In a statement, he said: “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.
“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.
“This case clearly raises serious issues. However I remain constrained for national security reasons as to what further I can say publicly.”