The lease for sporting rights on Raasay has been returned to the island's crofters for the current season and ministers will be involved in future decisions.
The move, which was announced by Alex Salmond at Thursday's First Minister's Questions, follows the withdrawal, by mutual consent, of the new leaseholder.
Environment Minister Paul Wheelhouse confirmed that the contract, which had been awarded to South Ayrshire Stalking following a competitive tender, had been withdrawn.
The previous lease, which had been held by the island's crofting community, will be extended by a year to enable the community to be consulted on longer term options for the lease.
Mr Wheelhouse said: "It's regrettable that the original decision to award the sporting rights contract was made without ministerial involvement.
"Raasay is a fragile island community and ministers recognise the sporting rights are very important to the islanders. I share the concerns expressed locally about the way in which the contract was awarded and will ensure, as I have indicated previously that in future, appropriate ministerial consideration is given when such decisions are being made.
"That is why I have taken steps to resolve the situation and I hope the Raasay islanders will be content with this solution. Effectively this will extend the islanders' existing lease by a year and will allow us to work with crofters and the wider community to find a satisfactory long-term solution."
Anne Gillies of the Raasay Crofters Association said: "I was delighted to speak to the minister this morning when he informed me of his decision which we strongly welcome. It is important to us that these sporting rights remain in local control and we look forward to meeting the minister to discuss community management of the sporting rights on Raasay."
The lease for Raasay Shooting and Fishing Rights was put out to tender after the existing lease expired in November 2012. Five offers were considered and the highest offer from South Ayrshire Stalking was accepted.
South Ayrshire Stalking will receive £9000 costs towards expenses already incurred.
The Free Church of Scotland took an "unprecedented step" by writing to MSPs to urge a rethink on who managed sporting rights on Raasay.
In their letter to MSPs, the ministers said the crofters' association was outbid by £2000 and the decision on who should hold the lease was made by unelected government officials.
The ministers argued that the progress in developing the sporting rights in Raasay to the benefit of the crofters and the community had outstripped the £2000 which was at stake.
Charles Kennedy, the Liberal Democrat MP for Ross, Skye, and Lochaber, called on the Scottish Government to match the amount paid in compensation.
He said: "I welcome the fact that this ministerial midden has at last been acknowledged and that the sporting rights are now firmly back where they belong - in the hands of the local crofting community.
"Now it is imperative that the situation well beyond one year hence is clarified to enable long-term planning and development.
"And the £9000 paid out in compensation should at least be matched as a contribution directly from the Scottish government to the Raasay crofters."