Around 60 veterans suffering from asbestos-related cancer will be given £140,000 lump sum compensation payouts after ministers bowed to pressure from the Royal British Legion, it is understood.
The former military personnel who contracted mesothelioma during their service will be entitled to the payments in an extension of a scheme announced in December.
The veterans were originally denied the compensation because they were diagnosed with the cancer before the scheme started.
Commodore Rhod Palmer, a third-generation Royal Navy sailor who was diagnosed with mesothelioma in April 2015 and stood to miss out on the payments, described the move as a "real breakthrough".
The 62-year-old also called for more research into the treatment of the "devastating" illness and thanked the Royal British Legion for its support.
He said: "No amount of money will ever compensate sufferers and their families for a preventable death.
"However, it is a real breakthrough that the Government will treat all current and future sufferers of mesothelioma exposed to asbestos during their service under comparable terms as civilians.
"This payment allows patients with mesothelioma to make arrangements to maximise their quality of life during this terminal illness and to support the family that they leave behind."
Chris Simpkins, director-general of the Royal British Legion, said the Government has "done the right thing".
He said: "We are gratified that good sense has prevailed and that the Government has extended eligibility to those people who - through no fault of their own - were missing out on the new lump sum compensation payment.
"The Government has done the right thing and we appreciate the effort that has gone into accommodating the 60 people who were missing out.
"This has been a hard-fought campaign which began in 2013. To see the campaign finally reach this stage I'm sure will provide a huge sense of relief for dozens of proud servicemen and their families.
"We are grateful to the Ministry of Defence for taking our campaign seriously and, in doing so, providing a fair result to all those who contracted this terrible terminal cancer in the service of their country."