Toyota says it has agreed to pay about $US1.1 billion ($A1.07 billion) to settle a class action lawsuit launched by US vehicle owners affected by a series of mass recalls from the Japanese carmaker.
Toyota did not accept any blame but agreed to compensate owners who argued that the value of about 16.3 million vehicles took a hit from dozens of deadly accidents allegedly caused by Toyota vehicles speeding out of control in 2009.
The deal will cover the cost of installing a free brake override system in about 2.7 million vehicles.
It will also provide cash payments to those who sold their vehicles in the wake of the recalls or who own vehicles ineligible for the override system.
Toyota shares jumped 2.74 per cent to Y3,935 by the morning break in Tokyo on Thursday, outpacing broader gains in the Japanese market as investors reacted to the settlement which was announced in the US on Wednesday.
The huge payout will "sting" Toyota, but it will also allow the Japanese giant to "leave these troubles behind and move forward in the new year", said Michelle Krebs, an analyst with automotive site Edmunds.com.
Once lauded for its safety standards, Toyota has been forced into damage control mode in recent years after recalling millions of vehicles because of a series of serious defects.
The firm's biggest domestic rivals, Nissan and Honda, have also issued huge recalls over their own safety and quality problems.
Earlier this year Toyota added two models to the 2009-2010 recalls launched after it was discovered that floor mats were trapping the accelerator pedal.
Toyota's mishandling of the initial problem and other reports of sudden, unintended acceleration led to a US congressional probe, more than $US50 million in fines from US regulators and public apologies by its chief.
Just two weeks ago, the company agreed to pay a record $US17.35 million fine for failing to promptly notify US authorities that the floor mats could also be trapped under the accelerators of 2010 Lexus models.
And last month Toyota agreed to pay $US25.5 million to settle claims from shareholders who lost money after the carmaker's stock price plummeted in the wake of the recalls.
Toyota has worked hard to regain its reputation for safety, while at the same time fighting off the impact of the economic crisis, a strong yen and the devastating 2011 quake-tsunami disaster.
The settlement helps Toyota avoid a lengthy and risky court battle with angry owners who also argued that its technology - not the trapped floor mats - was behind the deadly instances of sudden, unintended acceleration.
"This was a difficult decision - especially since reliable scientific evidence and multiple independent evaluations have confirmed the safety of Toyota's electronic throttle control systems," Christopher Reynolds, Toyota Motor North America's chief legal officer, said in a statement.
"However, we concluded that turning the page on this legacy legal issue through the positive steps we are taking is in the best interests of the company, our employees, our dealers and, most of all, our customers."
The settlement, which was filed in a California federal court on Wednesday, must still be approved by a judge.
It includes $US250 million for owners who have sold their vehicles, $US250 million for owners whose vehicles are ineligible for the brake override system and $US30 million for safety research.
Toyota will also provide free repairs for certain components linked to the recall.
Toyota said it would take a $US1.1 billion charge to cover the estimated costs of the settlement and two other cases.
A lead lawyer for the plaintiffs told the Wall Street Journal that Wednesday's deal could end up costing Toyota as much as $US1.4 billion.