Cheryl Holland, 40, a British Telecom manager, had sued for assault, false imprisonment and malicious prosecution.
Last year the Metropolitan Police paid out pounds 671,000 following claims for damages - about pounds 200,000 more than the previous year.
Mrs Holland had been arrested by PCs Simon Hartfield and James Kellet outside her mother's florist shop in Vauxhall, south London, in March 1989, after they spotted there was no tax disc in her car. They alleged that she had used abusive language and pushed PC Hartfield, that she had locked herself inside the shop and that officers had had to communicate with her through a letterbox.
Yesterday a court heard that these were fabricated allegations, and that in fact, while she had sought evidence over the shop telephone to prove that she had applied for the vehicle licence, a police van containing a number of officers arrived.
Wesley Gryk, her solicitor, said in an agreed statement to Lambeth County Court: 'She was approached by three uniformed officers who began to push her bodily into the corner of the recess. One of the officers, James Kellett, pushed himself physically against Mrs Holland's body, saying 'Have you got a problem?'.' Other officers then pushed her into the van.
But as a result of the officers' claims, Mrs Holland was fined pounds 15 for failing to display a tax disc, and given a six-month conditional discharge for failing to provide her name and address and using threatening, abusive and insulting words and behaviour.
Mrs Holland appealed in 1989 against her conviction, calling independent witnesses, including a postman, to prove that the shop had no letterbox, as the officers had claimed. Quashing the conviction, Judge Rucker said: 'It is a melancholy fact that the truth in this case has come only from Mrs Holland and witnesses.
'I was quite appalled by what we heard. It was quite clear that the officers were lying. It makes my blood run cold to think that police officers are willing to perjure themselves over a matter as trivial as this.'
Mr Gryk said the events had caused Mrs Holland, a woman of good character, acute anxiety and distress. Not only was she arrested in full view of many of her mother's neighbours and customers, but the arrest was conducted in 'an undignified and humiliating manner'.
She had decided to accept pounds 25,000 to vindicate her name and reputation.
After the hearing Mrs Holland, who is married with two sons, spoke of her relief, but said that she retained no bitterness towards the police.
'I was brought up to believe that you can get justice. I have always respected the police and I still do and the people who did this to me are in the minority.'
However, she said she was disappointed that they had not apologised.
Although he had agreed to pay the pounds 25,000 plus about pounds 7,000 costs, the Metropolitan Police Commissioner has not accepted liability. A spokeswoman for Scotland Yard said that both the Crown Prosecution Service and the Police Complaints Authority had investigated and concluded the evidence did not justify criminal proceedings. After an internal inquiry both officers 'were severely admonished by their chief superintendents', she said.Reuse content