The decision has raised the possibility that the Games may not take place.
Australia's Victoria state will pay A$380 million ($243 million) to Commonwealth Games organisers, Victoria Premier Daniel Andrews said on Saturday, after it withdrew as 2026 event host citing a projected cost blowout.
Victoria in July pulled out of hosting the quadrennial multi-sport event, which was to have been held in four regional hubs, with Andrews saying costs could have ballooned to more than A$7 billion from a budgeted A$2.6 billion.
The decision has raised the possibility that the Games may not take place for the first time since being cancelled due to the Second World War.
In a joint statement issued by Andrews on Saturday, the Commonwealth Games Federation, Commonwealth Games Federation Partnerships, Commonwealth Games Australia and Victoria said they had "settled all their disputes regarding the cancellation of the multi-hub regional Victoria 2026 Commonwealth Games".
"The State of Victoria has agreed to pay the Commonwealth Games parties ... AUD $380 million," the statement said.
"The parties also agreed that the multi-hub regional model was more expensive to host than the traditional models."
The payout comes after another blow was dealt to the long-running event when Canada's Alberta province earlier this month withdrew its support for a bid for the 2030 Games.
($1 = 1.5620 Australian dollars)
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