French President Francois Hollande's office said Wednesday he had reached an agreement with his Russian counterpart Vladimir Putin on compensation for failing to deliver two Mistral warships over the Ukraine crisis.
The fate of the ships has plagued Franco-Russian ties for months following Paris' decision in November to put the 1.2-billion-euro ($1.3-billion) deal on ice as the West slapped sanctions on Moscow over its annexation of Crimea and alleged backing of rebels in Ukraine.
The French presidency said in a statement that Russia would be "fully reimbursed" for the two helicopter carriers, which France will keep.
It added that all Russian equipment installed on the ships will be removed and handed back to Russia.
Russia, meanwhile, said France had already returned the money it paid out for the warships and considered the matter closed.
"The president of Russia and the president of France took a joint decision to annul the contract," the Kremlin said in a statement after a phone talk between the two leaders.
"Moscow considers the Mistral issue to be completely settled."
A Russian military source on Tuesday told state-run news agency TASS that a group of Russian specialists will be sent to France in September to dismantle and return communication equipment already onboard the ship.
The first ship had been due for delivery in 2014, while the second was to be delivered this year.
But as Russia and the West remained locked in their worst standoff since the Cold War over the Ukraine crisis, France's Western partners said any delivery of ships would undermine their efforts to isolate Moscow over its 2014 annexation of Crimea and support of separatists in eastern Ukraine.
In June last year, US President Barack Obama had urged Paris to "press the pause button" on its deal with Russia, signed in 2011.
The EU and US have slapped damaging sanctions on Moscow, and while there have been repeated attempts to negotiate an end to clashes between Kiev and the pro-Russian rebels in the east, none have held out.
The 16-month war in the European Union's backyard has killed nearly 7,000 people and Kiev and its Western allies fear it may turn into a "frozen conflict" in which low-level violence becomes a constant menace that leaves much of eastern European on alert.
Earlier this year, Hollande said that the conditions for delivery of the ships were "still not right".
In April, Putin downplayed the importance of the ships but insisted that the French side reimburse Moscow "all expenses" if the contract were to be terminated.