General Motors Corp. (GM) will pay Fiat $1.99 billion in a deal to drop an option which would have forced the U.S. giant to buy the Italian firm's loss-making car unit, GM said in a statement.

In the statement, GM said both the Fiat-GM Powertrain (search) and the purchasing joint ventures would be dissolved.

GM will also acquire an interest in "key strategic diesel engine assets and other important rights" through the deal.

GM will return its 10 percent stake in Fiat Auto (search).

A mediation process to sort out the row over the put option ended in stalemate earlier this month but sources said GM and Fiat had continued to negotiate a settlement and avoid a lengthy, distracting court battle.

GM insisted Fiat had invalidated its option to sell 90 percent of Fiat Auto because of restructuring moves at the Italian carmaker. Fiat rejected that and promised to defend the put, which was core to its valuation.

Fiat Chief Executive Sergio Marchionne had threatened to exercise the put any time from Feb. 2 to force a quick valuation of Fiat Auto and squeeze a deal out of GM, not necessarily as a prelude to a sale.

Investors had hopes GM and Fiat would reach an out-of-court settlement, with estimates in news reports ranging from 1.0-1.8 billion euros.