The drink’s owner Vin & Sprit (V&S) sued the station’s parent company TIML Radio last year, claiming that the public could confuse the two brands.
A statement from Absolute Radio says the terms of the settlement are confidential.
Both parties declared themselves “pleased” with the outcome.
Paula Eriksson, spokeswoman for V&S, says the settlement allows it to “develop the iconic Absolut brand without risk of confusion to the public”.
Clive Dickens, chief operating officer at Absolute Radio, adds the conclusion will allow the station to “continue to build our music radio brand”.
Absolute Radio launched in September 2008 after it rebranded from Virgin Radio.
V&S, and Absolut, was acquired by Pernod Ricard in March 2008 for €5.63bn (£4.48bn).