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Reading believed they should not have to pay the £50,000 bonus fee written into the original £700,000 deal as Murty signed a new contract. They felt that this overwrote the clause in the old deal.
However, the Minstermen, who have been in grave financial difficulties, were insistent that as Murty's original four-year contract, signed in 1998, would not have expired had a new deal not been signed, thus meaning they were owed the money.
York, who play their football at Bootham Crescent, had threatened to report Reading to the Football League if they didn't pay up.
An undisclosed settlement has now been paid by the Royals.
"The two clubs have agreed a settlement. The actual amount has not been disclosed but it is all sorted out now," confirmed York Media Manager James Richardson, speaking to Soccernet.com.
Murty, whose first two-and-a-half years at the club were blighted by injury, was involved in a car crash on his way home from training on Monday. He was taken to hospital with whiplash injuries.
Team mate Martin Butler, who was driving the car, was unharmed in the collision with a large van.
The right-back, whose name is one of the first on Alan Pardew's teamsheet, is rated as doubtful for Saturday's game at Rotherham.