Lugovoi, an ex-Kremlin bodyguard who London accuses of poisoning Alexander Litvinenko, a former FSB officer and Kremlin critic, with a fatal dose of radioactive polonium last November, took legal action over Kommersant's July article that he said had portrayed him as a murderer.
Under the agreement, Kommersant will pay 1 million rubles ($40,000) in compensation. The money is to be donated to charity.
A Kommersant manager said his publishing house was satisfied with the deal.
"I believe that Lugovoi is also satisfied with it," said Georgy Ivanov, head of the newspaper's legal service.
The paper wrote on July 9 that "after Britain's Crown Prosecution Service accused him of murdering... Litvinenko, Lugovoi was the first to speak about his victim's ties to British intelligence services."
Tatyana Stukalova, a lawyer representing Lugovoi's interests, said earlier: "My client believes that by saying that 'Lugovoi was the first to speak about his victim's ties [with British intelligence services]' ... the paper imposed its viewpoint on its readers and portrayed Lugovoi as guilty."
"We believe the article reports information that does not reflect the truth, and blemishes Lugovoi's dignity and business reputation," she said.
Russia's refusal to extradite Lugovoi to the U.K. has proved a major source of contention in relations between the countries, and in July sparked a tit-for-tat row involving expulsions of diplomats and visa restrictions.
Moscow has denied London's extradition requests, citing its Constitution, which bars the extradition of Russian nationals. Russian authorities said they could try Lugovoi at home if Scotland Yard investigators were to provide sufficient evidence.
In September, Lugovoi, a millionaire businessman who owns a private security company, confirmed that he would run for parliament as a candidate for the Liberal Democratic Party, led by outspoken pro-Kremlin ultranationalist Vladimir Zhirinovsky. Under Russian law, a seat in the State Duma would give Lugovoi immunity from prosecution.
