The composer purchased The Absinthe Drinker (Angel Fernandez de Soto) in 1995 for $28.8 million (£18 million) and later donated it to his educational charity.
But Julius H. Schoeps, an heir to German banker Paul von Mendelssohn-Bartholdy, launched a legal bid for ownership, alleging his ancestor was forced to sell the masterpiece after fleeing the Nazis in the 1930s.
In 2006, a judge issued a temporary ban preventing the Foundation from selling or displaying the painting publicly while the dispute was ongoing.
On Thursday (07Jan10), von Mendelssohn-Bartholdy's heirs released a statement confirming they have reached a confidential agreement and have now relinquished claims of ownership - and the ban is no longer in place.
A spokesman for the Foundation says, "The Trustees of The Andrew Lloyd Webber Art Foundation are pleased to announce that Professor Julius Schoeps and all other heirs of Paul von Mendelssohn-Bartholdy and Elsa von Kesselstatt have settled and relinquished any and all claims of title in the Foundation's painting The Absinthe Drinker (Angel Fernandez de Soto) (1903) by Pablo Picasso."