When the government shifted position to disallow the land's usage in July, it angered the Hindus of Jammu, where they form the majority. They blocked the main roads into the Kashmir valley, essentially imposing an economic blockade.
As of Sunday's ruling, the land is to be used by the Shri Amarnathji Shrine Board during the pilgrimage period every year for temporary facilities, including toilets for pilgrims visiting an icicle in the cave shrine.
Leela Karan Sharma, the head of the Hindu group that was protesting for the use of the land, said: "The shrine board will now exclusively use the land during the pilgrimage period.
"We are suspending the agitation for now."
Sharma's organisation had been demanding exclusive rights on the pilgrimage, including the creation of facilities. These demands have now been met.
The government had previously said facilities would be provided by the tourism office and the shrine board would take care of only religious rituals during the pilgrimage period, usually from June or July to August.
The news was met by dancing and singing on the streets of Jammu. The authorities, however, immediately imposed a curfew as a "security measure".
Since last June, at least 39 Muslims and three Hindu protesters have been shot dead by police. Hundreds more have been injured. Indian troops have been criticised by international human rights groups for using excessive force.
The authorities had relaxed a curfew in Srinagar, the summer capital, on Saturday, but separatists say they will continue their campaign.