Former Gurkhas who retired before 1997 and served for more than four years will be allowed to apply for settlement in the UK, under a u-turn announced today by Home Secretary Jacqui Smith.
After a high profile campaign led by actress Joanna Lumley, Ms Smith told cheering MPs: "I'm proud now to be able to offer this country's welcome to all who have served in the Brigade of Gurkhas and wish to settle here.
"I'm delighted that we have now been able to agree - across Government, across the House and with the Gurkhas' representatives - new settlement rights that all those who have served us so well, so highly deserve."
Last month, Gordon Brown's Government suffered its first major defeat by 21 votes, as 27 Labour rebels joined the Tories and Liberal Democrats in demanding equal residency rights for all Gurkha soldiers after a high profile public campaign.
The Prime Minister told the Commons yesterday that he had a "great deal of sympathy and support" for Gurkhas who wished to live here.
He said: "I believe it is possible for us to honour our commitments to the Gurkhas and to do so in a way that protects the public finances.
Shadow home secretary Chris Grayling today hailed the u-turn as a "great victory for a well run campaign, that has publicly embarrassed ministers".
Ms Smith said Gurkhas who retired after 1997 already had the right to settle here and more than 6,000 had done so.
After the Government's defeat ministers had undertaken to "respect the will of the House" and come forward with fresh plans.
New guidance would do this while remaining "affordable and consistent" with broader immigration policy.
"All former Gurkhas who retired before 1997 and who have served more than four years will now be eligible to apply for settlement in the UK," she said, to cheers.
"On the basis of the figure of 10,000 to 15,000 main applicants suggested by Gurkha representatives, I expect to be able to welcome these applicants and their families over the course of the next two years.
"I'm making resources available to do this and making it clear there should be no time limit on these applications."
Former Gurkhas would be entitled to bring with them their spouses and dependent children under 18.
Ms Smith said 1,400 outstanding applications for settlement now before the UK Border Agency would be processed on the basis of the new policy "as a matter of urgency" before June 11.
"This guidance recognised the unique nature of the service given to the UK by the Brigade of Gurkhas.
"It is offered to them on an exceptional basis."