HALIFAX - Veterans who battled the decades-long practice of clawing back military pensions have been offered up to $887.8 million by the federal government in a tentative settlement hailed by the lead plaintiff in the case.

"It's just a phenomenal day," Dennis Manuge said Wednesday. "I'm very relieved."

The law firm that represents Manuge, who led a class-action lawsuit against Ottawa over the clawbacks, said the proposed deal includes $424.3 million in retroactive payments to veterans that dates back to 1976. That includes $82.6 million in interest.

The rest of the compensation is an estimate of the amount the veterans will be owed in the future and a $10-million scholarship fund for veterans and their families.

Manuge said he expects disabled veterans in the class-action lawsuit will strongly support the proposal, which goes back to the Federal Court in Halifax on Feb. 14 for final approval.

Manuge was injured in an accident at Canadian Forces Base Petawawa in Ontario just before being deployed to Bosnia in 2001. He left the military in 2003, suffering from a lower back injury and bouts of depression.

He filed the class-action lawsuit in March 2007 on behalf of himself and other disabled veterans whose long-term disability benefits were reduced by the amount of the monthly Veterans Affairs disability pensions they received.

His legal team scored its victory last spring, when the Federal Court said it was unfair of the federal government to treat pain and suffering awards as income.

Defence Minister Peter MacKay later said the government wouldn't appeal, and appointed a negotiator to cut a deal with the disabled veterans.

Manuge said he expects there will be widespread support from the approximately 7,500 veterans who are eligible under the agreement.

"It's life-altering for some veterans," Manuge said in a phone interview.

The number of veterans initially thought to be eligible for payouts was pegged at 4,500, but that increased after more detailed reviews of the disability pension plan, Manuge said.

He said he stands to collect about $9,400 this year under the proposed deal, along with $50,000 that the law firm would provide him for his role as lead plaintiff.

He and other veterans would also receive future disability payments that would otherwise have been clawed back, he added.

Manuge said he's at the low end of the scale, and other veterans with more severe disabilities could be paid up to $250,000 this year.

"You're talking about being able to pay off the mortgage or buy a house or put savings away as you age," he said.

Peter Driscoll, the lead counsel in the class-action lawsuit, said if the deal is approved, payouts could begin within six months.

Driscoll said he is pleased with the deal because the federal government had originally sought to limit the retroactivity.

"By going back to 1976, we've obtained a major concession from the government of Canada," he said.

"Everyone who has ever been on the receiving end of the offset ... will be able to get their money back."

In a statement, MacKay said the government moved swiftly to bring closure to the six-year-old case.

"Acting quickly and fairly to resolve this matter is of the utmost importance, and I am pleased an agreement in principle has been reached," he said.

But the Liberal veterans affairs critic said the agreement marks the end of a long and difficult court battle that could have been avoided.

"We are pleased that the Conservative government has finally concluded a settlement agreement," Sean Casey said in a statement.

Driscoll said the law firm is asking for 7.5 per cent of the total settlement, but that's subject to court approval.

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