"This reversal of some of the funding cuts has come at the 11th hour for our service, just three months from when the cuts were to take affect," said the Chair of the Aboriginal Legal Service NSW/ACT (ALS), Ivan Simon, in a media statement.
"To a great extent, 15 months of funding uncertainty is over."
Attorney-General George Brandis confirmed the decision in Canberra today.
"The cuts that were to take effect from the first of July 2015 will not proceed."
"With the passage of time and a greater appreciation of where the needs lay and where the priorities lay – we are taking what you might call a more nuanced approach."
In December 2013 the government announced $43 million in cuts to the sector over four years - including more than $13 million from Indigenous legal services.
Over the last year, dozens of groups have called on the Attorney-General to reverse the decision and earlier this month the seven State and Territory Attorneys-General wrote an open letter expressing their opposition.
With the new financial year approaching and a lack of certainty around funding, many groups had been restructuring and preparing to lay off staff.
Senator Brandis says that the government has listened and made the announcement ahead of the budget to ease anxiety in the sector.
"These decisions have been revisited because of the particular social need that the community legal centres address, particularly in relation to domestic violence and the Indigenous legal centres address in relation to Indigenous people."
"I'm proud that we have made this decision. We are a government that is determined to exercise fiscal discipline, but we are also determined to look after the most vulnerable people in our communities and those are not inconsistent objectives."
The reversal means an additional $25.5 million in federal funding for the legal assistance sector over the next two years, including $11.5 million for the Commonwealth Indigenous Legal Assistance Program.