Wen Ho Lee had filed a suit against the US energy and justice departments and the FBI, accusing them of violating his privacy by leaking information to US journalists that he was under investigation for spying for China.
Lee, a Taiwanese-American, formerly worked at the Los Alamos National Laboratory in New Mexico but was fired in 1999.
"We are hopeful that the agreements reached will send the strong message that government officials and journalists... should act responsibly and be sensitive to the privacy interests afforded to every citizen of this country," Lee said on Friday.
The scientist was held in solitary confinement for nine months but never charged with espionage, eventually pleading guilty to a lesser charge of mishandling computer files.
The news agencies and their reporters were not defendants in the privacy lawsuit, but contempt of court proceedings were launched separately after the agencies refused to reveal their sources to Lee's lawyers.
Lee's lawyers had subpoenaed the agencies to find out who had been leaking the information about Lee's case to the media.
The US government said it would pay Lee about $900,000 to cover legal fees and taxes, while the news agencies, including The New York Times and the Washington Post, would pay $700,000.
The contempt proceedings against the news agencies will be dropped.
The news agencies said in a statement that they were reluctant to pay, but did want to face further fines or risk prison for their journalists.
"We decided this was the best course to protect our sources and to protect our journalists"
News agencies' statement
"We decided this was the best course to protect our sources and to protect our journalists," the agencies said in a statement.
Lee and the government said that the settlement agreement should not be seen as admission by the US government that Lee's allegations of leaking information about him were true.