Former children's secretary Ed Balls has said a reported six-figure unfair dismissal payout to the child protection boss sacked over the Baby P scandal will "appall people across the country".
A settlement which could be up to £600,000 has been agreed with Haringey Council, although it is thought Sharon Shoesmith may receive a lower sum.
Mr Balls removed Ms Shoesmith from her £133,000-a-year post as the council's director of children's services after a damning report on the death of Peter Connolly.
She was then fired by the council without compensation in December 2008, after a report from regulator Ofsted exposed that her department failed to protect 17-month-old Peter - then known publicly as Baby P. She has reportedly not worked since.
Mr Balls, now shadow chancellor, told BBC Radio 5 Live: "An independent report said there were disastrous failings in Haringey children's services.
"They said the management was at fault. Sharon Shoesmith was the director of children's services and so of course it leaves a bad taste in the mouth that the person who was leading that department and responsible ends up walking away with, it seems, a large amount of money.
Baby Peter suffered some 50 injuries despite being on 'at risk' register "The payout is something that will appall people across the country. What it can't do is bring back a little boy who lost his life because he was failed by Sharon Shoesmith and that department. That's the truth and that will never change."
Ms Shoesmith won a 2011 ruling that she had been unfairly sacked from her job following the report into the death of 17-month-old Peter, who died in 2007 following months of abuse.
Her lawyers argued that she was the victim of a "flagrant breach of natural justice" fuelled by a media witch-hunt.
In May 2011, the Court of Appeal concluded she had been unfairly sacked because Mr Balls and Haringey had not given her a proper chance to put her case before she was removed.
The Department for Education and Haringey sought permission to attempt to overturn the ruling in the Supreme Court, but judges rejected the applications, clearing the way for Ms Shoesmith to receive compensation, which some experts predicted could even be as high as £1m.
Peter's ordeal at the hands of his mother and Steven Barker shocked the UK Some of the cash for her settlement will come from central government funds, but the council will have to foot most of the bill, according to BBC Newsnight.
Mr Balls said at the time at the time of the Court of Appeal ruling he was "surprised and concerned" by the decision, which he warned would make it "difficult for ministers to act swiftly" when children are at risk.
Peter died in Tottenham, north London, at the hands of his mother Tracey Connelly, her lover Steven Barker and their lodger Jason Owen.
He had suffered more than 50 injuries despite being on the at-risk register and receiving 60 visits from social workers, police and health professionals over the final eight months of his life.
A series of reviews identified missed opportunities when officials could have saved his life if they had acted properly on the warning signs in front of them.
Ms Shoesmith had been due in court later this week, seeking a declaration that she remained employed by Haringey Council.
That action has now been dropped, and the settlement reached between the two parties is understood to be a final one.
The council said the terms of the settlement were confidential.
A spokesman said: "Following the decision of the Court of Appeal in favour of Ms Shoesmith, and the court's direction that the parties seek to resolve the issue of compensation, the London Borough of Haringey and Ms Shoesmith have reached a settlement in this case."
Earlier in October it was reported that Tracey Connelly was due to be released from prison on parole.
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