The London Organising Committee of the Olympic Games (LOCOG) had instructed JCDecaux to take the billboard ads down from London train stations, prompting the bookmaker to mount a legal challenge.
Paddy Power’s legal firm Charles Russell wes set to enter the High Court in London to seek a court order against LOCOG when LOCOG's law firm Freshfields informed Paddy Power it would no longer push for the ads to be taken down.
A spokesperson from Paddy Power said: "This is a victory for common sense and for each and every one of our customers and fans who supported us along the way.
"The athletes of London, France will be breathing a collective sigh of relief this afternoon. May the Games begin!"
The ads, which are up on JCDecaux sites in London Bridge, St Pancras and Victoria stations, promote Paddy Power’s sponsorship of ‘the largest athletics event in London this year’.
Only the official sponsors (brands such as BA, BT, Coca-Cola, McDonald’s and Adidas) of the Olympic and Paralympic Games are allowed to use references to the Games in their marketing.
None of the sponsors are betting companies and the International Olympic Committee actually prohibits all forms of promotion of betting related to the Olympic Games or support for betting related to the Olympic Games.
A spokesman for LOCOG had not responded to a request for comment on the change in its position by the time of publication.
This morning a London 2012 spokesperson said: "We can take a joke, but as you would expect we had to draw the line at the provocative references to LOCOG."