It marks an end to the row sparked by Sheffield United's relegation from the Premier League in 2007 and means an independent tribunal to look into the so-called Tevez affair will no longer go ahead on Monday.
"Both clubs are pleased to announce that a satisfactory settlement for compensation has been reached which brings the dispute between Sheffield United and West Ham United to an end," West Ham CEO Scott Duxbury and Sheffield United Chairman Kevin McCabe said in a joint statement on the clubs' websites.
"For everyone concerned, the time was right to draw a line under this whole episode," Duxbury added.
The Argentina international moved on to Manchester United in August 2007 but the dispute between the clubs began when Sheffield United appealed to the Premier League claiming that Tevez, deemed to have had a key role in West Ham's top-flight survival, was ineligible to play for the London club under league rules regarding third-party ownership.
Tevez was cleared to play for the rest of the season and scored the winning goal at Manchester United on the final day of the season to complete the club's unlikely escape from the drop.
"We are happy and satisfied with the settlement," said McCabe.
"We are two clubs with a fantastic footballing history who now want to move on and focus on the business of playing football," added McCabe, who has said in the past relegation cost his club at least 50 million pounds.
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