Former Guantanamo inmate drops case against Australia

Mamdouh Habib last year won the right to sue the government over interrogations in which he alleges he was tortured, beaten and shackled to the floor in the presence of Australian spies, diplomats and police officers.

Gillard said Habib has now reached a confidential, out-of-court settlement with the government.

"Clearly this is a matter that has been a long time in the making and in the interests of the Commonwealth it wasn't in our interests to have a long and protracted litigation," Gillard said.

"So the matter has been settled. The terms of the settlement are confidential."

A spokesman for the Attorney General said the agreement was reached on December 17 in relation to Habib's claim for compensation following his arrest and detention overseas between 2001 and 2005.

Habib's claims centred on 12 interrogation sessions which took place following his arrest in Pakistan in the wake of the September 11, 2001 attacks on the United States.

He had been seeking compensation over the electrocution, burning, sleep deprivation and drug injections he claimed he endured in Pakistan, Egypt, Afghanistan and at Guantanamo Bay.

Habib was released without charge from Guantanamo Bay in January 2005.