The Canadian Transportation Agency announced the decision late Friday, reversing a move made earlier in the week.
The arm's length federal regulator had suspended Montreal, Maine & Atlantic's certificate of fitness after ruling it didn't have sufficient third-party liability insurance.
That decision was overturned after the agency determined that the railway had sufficient coverage to operate in the short-term.
The railway's licence is now valid until Oct. 1.
A statement issued by the agency explained the new decision is based on new information provided by the company. It stressed the extension is for a short time period.
"Based on the new evidence provided today, the agency is satisfied that this provides adequate third party liability insurance coverage for operation from August 20 to October 1, 2013," the statement said.
The extension is conditional on MMA providing confirmation by Aug. 23 that it has secured enough cash to pay for the self-insured portion of its coverage.
MMA is implicated in the devastating July 6 derailment that killed 47 people and wiped out part of downtown Lac-Megantic.
The cash-strapped U.S. company still faces a number of financial hurdles and its future remains in doubt.
A criminal investigation is underway, several lawsuits have been filed, and the provincial government has demanded money from MMA for the massive cleanup efforts.
Last week MMA was granted creditor protection in Canada and bankruptcy protection in the United States.