Monarch has been granted an extension on its licence to operate, the Civil Aviation Authority (CAA) has said.
The firm has been given 12 more days to meet the requirements of an Atol licence, the government-backed scheme which compensates travellers in full and ensures they are not stranded if a holiday company collapses.
The announcement came following discussions between Monarch and the CAA, the UK's specialist aviation regulator, and just hours before the licence was due to expire on Friday.
In a statement, Monarch said it had "successfully concluded discussions" and offered its thanks to the CAA.
It added that it had received "significant further investment" from shareholders and was "close to announcing the largest investment in its 48-year history".
The company was forced to deny "negative speculation" over the weekend that it is in financial trouble.
Andrew Swaffield, chief executive of The Monarch Group, said: "I am delighted that we have been able to come to an agreement with the CAA on the extension of Monarch's Atol licence and am excited about the additional capital coming into the group which will help us fund our future growth.
"I am immensely proud of the professionalism of the Monarch team."
Earlier this week, the CAA said Monarch would have been unable to sell package holidays if its licence was not renewed.
It said there are no set criteria for approving applications for Atol licences, but the process involves assessing a company's finances, business model, corporate governance and group structure.
The potential impact on consumers of an applicant going bust is also taken into account when extending a licence.
The CAA said it would continue to monitor the company during the 12 day extension period.
"The CAA always advises consumers to ensure they book Atol-protected air holidays and consumers who choose to book an Atol-protected flight or holiday with the company during this time will continue to be protected by the Atol scheme," it said in a statement.
Brian Strutton, general secretary of the British Airline Pilots Association (Balpa), said: "The uncertainty hanging over Monarch has been lifted which will be good news for the pilots, crew, staff and customers.
"Although the Monarch licence has been extended temporarily for 12 days, my understanding is this will be sufficient to satisfy the regulator that long term funding is secure and details of this will emerge over the next few days."