The agreement will allow the Corporation, which owns and administers the site, to begin the second phase of a pounds 60m programme to bring Smithfield into line with European Union requirement.
Traders exerted pressure on the Corporation by using its archaic electoral system to vote two of their representatives on to the Court of Common Council, the Corporation's ruling body, earlier this year. Even though the dispute is over, the traders say they have no intention of dismantling their new political power base.
The package agreed by the two sides includes an undertaking to freeze rents until all the new accommodation is ready for occupation, so traders moving from the older stalls into their new ones are not faced with higher costs.
When the second phase of the work is completed, probably within the next two years, a new rent of pounds 20 a square foot will also be frozen for another four years.
Rents are now pounds 13 a square foot, but are increased annually by 9 per cent. The Corporation believes the deal will reduce initial costs for tenants by pounds 2m. In return the traders will pay for the fitting of their new stalls at an estimated cost of between pounds 5 and pounds 7 a square foot.
John Brewster, chairman of the Smithfield Market Tenants Association (SMTA), said it was the deal the traders had wanted. 'The new rents, when the place is finished, will include service charges and an office will be thrown in.'
Michael Cassidy, the chairman of the Corporation's powerful policy committee, said he and the traders had reached a compromise. 'We have peace and honour on both sides.'
The Corporation has also agreed to pay 75 per cent of the cost for a new carcass delivery system (estimated at pounds 1m), and to honour the bids for new stall reservations made by individual traders while the SMTA and the local authority were refusing to negotiate.
At the heart of the dispute was the threat by traders to use a local government loophole that would have meant that they would have significantly increased their power within the Corporation.
People who own or lease property are allowed to vote in Corporation elections and the traders discovered that it was legal to lease buildings across the City, divide them into hundreds of small areas of floor space and sublet each section to family and friends. Each would then be qualified to vote.
Although the compromise has now been reached, the opportunity to strengthen the traders' power remains.
For those wanting to vote in December the closing date for registration was 15 June and the Corporation believes the traders may have recruited as many as 200 people over the City's 25 wards.
Peter Martinelli, a former trader and an elected member of the Court of Common Council, said: 'We are never going to relinquish the vote we have.
'All I can say is that I would think it will have been hundreds of hundreds who have registered.'
However, Mr Cassidy believes the traders who have registered will not pose a threat to the stability of the Corporation.
'They have registered their hundreds of supporters, but I have more than matched their numbers in my own ward by my own supporters. My expectation is that they will rapidly lose interest now this agreement has been reached.'
He said one-third of the wards have fewer than 1,000 electors and are, therefore, vulnerable to the efforts of the traders using the electoral