Unitech has agreed to sell its share in the venture, Uninor, for "a nominal amount", Telenor said. The terms of the deal are covered by a confidentiality agreement.
The settlement ends all legal proceedings launched by the two parties against each other, and removes a stumbling block in the country for Telenor, which contemplates bidding in India's upcoming 2G spectrum auction.
In February, India's Supreme Court cancelled 122 licences awarded in 2008, including 22 that were held by real estate group Unitech, after the low price of the permits prompted allegations of corruption.
Telenor opposed the cancellation, arguing that it had formed its partnership a few months after the licences were awarded, and that it therefore could not be punished for any alleged wrongdoing that took place before then.
Faced with the prospect of losing its total Indian investment cost of 17 billion kroner ($3 billion), which included a 67.25 percent stake in Uninor, Telenor turned on its ex-partner.
To regain its foothold in India, it will have to pay further billions of kroner in the next auction, an investment criticized by most analysts, who also questioned the Norwegian company's initial foray into the highly competitive Indian market.