The company has agreed to call off its lawsuit in a deal that will not require the council to concede liability and will ensure that neither party reveals any of the details.
As we reported last month, the case came out of Scotland's only major electric vehicle trial, which received £1.8 million in funding from the UK's Technology Strategy Board. This paid for a £650,000, three-year contract for Allied, which converts vehicles to electric power, to supply 40 of them to the council to be trialled by members of staff.
Also included in the funding were 40 charging points and a Strathclyde University study into the vehicles' carbon emissions. It was part of a £25m programme that funded various similar projects in England.
The dispute concerned nine Peugeot Expert people carriers, which the council returned to Allied just before the first year of the contract had elapsed. It claimed that the vehicles were not fit for purpose within the terms of the contract.
Allied has maintained that it was not responsible for this situation. As a result, it sued the council for compensation for the £140,000 in rental fees that would have been paid for the nine vehicles over the remaining two years of the contract.
The council's legal team successfully persuaded Lord Glennie in the Court of Session in Edinburgh at a preliminary hearing shortly before the turn of the year that certain interpretations by Allied of the contract were incorrect.
But if this seemed to boost the prospects of the council successfully defending the case, it subsequently reached the conclusion that reaching a deal was preferable to fighting Allied through the courts.
Neither side would disclose how much has been paid by the council in settlement.
Allied declined to comment.
A spokesman for the council said: "Allied Vehicles Limited and Glasgow City Council have settled the action raised in the Court of Session extrajudicially and without admission of liability on the part of the council."