Levein, who was relieved of his duties after a disappointing start to the World Cup qualifying campaign, had served the SFA with a writ but both parties have now agreed an undisclosed settlement.
The governing body said it intended to honour the former manager's contract over the remaining 20 months of his deal but it was understood Levein had wanted a lump sum.
The decision effectively placed Levein on gardening leave until the summer of 2014 and an agreement would have had to be reached between all parties if he had found a new job before then.
In a statement, the SFA said: "The Scottish FA and Craig Levein confirm that a mutually acceptable settlement has been reached for an undisclosed sum in relation to Craig's contract.
"The Scottish FA wishes Craig well for the future. No further comment will be made on this matter."