The deal was struck yesterday at a meeting Pikoli held with justice minister Jeff Radebe, finance minister Pravin Gordhan, public service administration minister, Richard Baloyi, as well as legal counsel for both Pikoli and government.
Pikoli has fought three successive presidents to get his job back.
He was fired in December 2008 by then president Kgalema Motlanthe, following his suspension by former president Thabo Mbeki in September 2007.
Mbeki cited an irretrievable breakdown in the relationship between Pikoli and former justice minister Brigitte Mabandla as reason for Pikoli's suspension.
This after Mbeki and Mabandla objected to Pikoli's plans to arrest then police commissioner Jackie Selebi.
Mbeki then appointed former Parliamentary Speaker Frene Ginwala to head an inquiry into Pikoli's fitness for office.
During his stint as president, Motlanthe fired Pikoli, citing the state security threat - mentioned in passing by Ginwala's findings - Pikoli posed due to plea-bargain deals he had with criminal suspects. This was despite Ginwala's finding that he was fit and proper to hold office.
In February, Pikoli took government to court in a bid to get his job back and was granted an interim urgent interdict in August to prevent President Jacob Zuma from permanently replacing him.
The matter was due to be heard by the High Court in Pretoria tomorrow, but justice spokesman, Tlali Tlali, confirmed last night that part of the R7.5-million deal was that Pikoli would withdraw the case.
"The matter is now resolved and settled," Tlali added.
Zuma's spokesman, Vincent Magwenya, said both parties were happy with the settlement.
"The purpose of the settlement was not to apportion blame. Both parties appreciated the need to move on," he said.
"The two parties acknowledge that a breakdown took place in their relationship, and now wish to restore their relationship to one characterised by mutual trust and respect."
He could not be drawn into who Zuma would appoint as permanent head of the NPA.
Advocate Mokotedi Mpshe has been acting since Pikoli was suspended.
Pikoli's lawyer, Aslam Moosajee, told the Sunday Times last night that Pikoli was "relieved" as the saga had been a "burden" and he could now move on.
Pikoli has maintained from the start that he was suspended and fired in order to protect former police chief Jackie Selebi, currently on trial for corruption and defeating the ends of justice.
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Xhamela