Dan Jarvis has been told he will be able to remain an MP if he is elected as Sheffield City Region mayor.
Labour’s National Executive Committee ruled last week that no-one could serve in two elected roles.
A Labour source revealed both parties had now agreed the Barnsley Central MP would be able to remain in parliament.
Mr Jarvis said: “I am honoured to be Labour’s candidate for the Sheffield City Region mayoral election and I am looking forward to the campaign.”
The Yorkshire and Humber Parliamentary Labour Group, with 36 MPs, had backed Mr Jarvis, saying he was selected in the “full knowledge” he would do both jobs.
Mr Jarvis is the favourite to win the contest as all 14 South Yorkshire constituencies taking part in the election were won by Labour at the last general election.
The four-year mayoral post has been controversial because, unlike similar roles in Manchester and the West Midlands, no devolution and funding deal has yet been agreed.
Nominations for candidates for the election on 3 May close on Friday.