Yusuf Islam, formerly Cat Stevens, on Friday accepted libel damages and an apology from a news agency which reported he refused to talk to women at an awards ceremony who were not wearing a veil.
The artist, who changed his name after becoming a Muslim in the late 1970s, will donate the "substantial" payout to Small Kindness, a UN-linked charity which he chairs.
Adam Tudor, the singer's solicitor, told London's High Court that the story behind the legal action was published by World Entertainment News Network and was used on Contactmusic.com, a Web site said to have 2.2 million page views a month.
The article appeared in March 2007 and suggested that the singer was "so sexist and bigoted that he refused at an awards ceremony to speak to or even acknowledge any women who were not wearing a veil," Tudor said.
"It went on to suggest that Mr. Islam's manager had stated 'Mr. Islam doesn't speak with women except his wife. Least of all if they don't wear a headscarf. Things like that only happen via an intermediary."'
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Tudor said the article had embarrassed the singer, creating a false impression of his attitude to women and also casting serious aspersions on his religious faith.
World Entertainment News Network issued an apology, saying:
"We now accept that these allegations ... are entirely without foundation, and that Mr. Islam has never had any difficulties working with women, whether for religious or for any other reason."
Islam, 59, is still best known for his hits as Cat Stevens, including "Wild World," "Morning Has Broken" and "Moonshadow."
He sold an estimated 60 million albums as Stevens, but retired from showbusiness in 1978 after converting to Islam. He released his first mainstream pop album since then in 2006.