Actress Cameron Diaz (search) accepted "substantial" damages Friday from a British tabloid that reported she had an affair with a married man, her lawyer said.

The actress' lawyer, Simon Smith, did not say how much Diaz received in the out-of-court settlement after suing News Group Newspapers, publishers of The Sun (search), over an article that appeared in the paper in May 2005.

Diaz, star of "Charlie's Angels," "Shrek" and "The Mask," has been dating singer Justin Timberlake (search) since 2003.

Smith, managing partner of the media law firm Schillings, said publication of the allegations had damaged Diaz's personal and professional reputation and "caused distress" to all those concerned.

The Sun has now accepted that "the incident involved no more than Ms. Diaz giving a friend a goodbye hug and any suggestion of a romantic involvement is entirely untrue and without any substance whatsoever," said to a statement read out in court by Smith.

The publisher's lawyer, Benjamin Beabey, told judge David Eady that they were accepting that the allegations "are without foundation and ought never to have been published."

News Group Newspapers has also agreed to publish an apology and retraction in its newspaper and reimburse Diaz's full legal costs.

Smith told the Court that "in those circumstances, and in light of this vindication, my client is prepared not to proceed any further."

The settlement does not include another defendant, American Media Inc., which publishes The National Enquirer (search). According to Beabey, The Sun's article was based on an earlier report by the Enquirer.

The action against American Media will continue, Smith told The Associated Press.

This is the second legal victory in a week for Diaz.

Earlier this week, a photographer who tried to sell topless photos of the star in 2003 was found guilty of forgery, attempted grand theft and perjury by a Los Angeles court.