Former soldier Tom Gilzean had been left in tears after being warned that he could face legal action if he continued collecting.
In the last year he has collected more than 35,000, by standing at the top of the Royal Mile for three hours a day.
But the council has performed a U-turn after his plight was revealed in the News. Council regulations meant he could only be given a permit to collect on five days every year.
After talking to Mr Gilzean, deputy council leader Steve Cardownie said the council would take "exceptional measures" to ensure he could continue his good work.
While the details of a new licence still need to be finalised, Councillor Cardownie praised Mr Gilzean's work and insisted the council had no intentions of preventing him from carrying on.
Today Mr Gilzean said he was "delighted" by the news, and revealed he had been overwhelmed with support following our report. He said: "I'm delighted. Mr Cardownie met me and while I know it's not all sorted yet, he said they would take up my case and not to worry, which was a huge relief.
"It has been incredible how much support I've had. People have been stopping me in the street to say how shocking they thought it was and telling me to keep going. I'd just like to thank everyone for the support."
The 90-year-old former soldier started collecting for charity five years ago after being contacted by a friend who wanted help raising funds for the Sick Kids Friends Foundation.
Since then he has raised funds for five charities.
Cllr Cardownie said: "I met with Tom Gilzean and reassured him that we will look to take exceptional measures for such an exceptional case.
"The council does have a policy which regulates the number of permits given out to charity collectors. This is necessary to ensure that residents and visitors are not faced with an overwhelming number of requests for charity donations.
"Tom Gilzean is an extremely well-regarded citizen who has won widespread recognition for his charity work."
Cllr Cardownie added that Mr Gilzean had applied for a permit which would cover collections in early 2011 which would be "subject to further discussion."