Diageo has settled a dispute with Sean “Diddy” Combs after the US rapper accused the UK spirits giant of racism.

Mr Combs withdraw his legal action and all allegations as part of the resolution.

Last year, the music mogul’s business began legal action claiming that the DeLeon tequila brand co-owned by the two groups, and Ciroc vodka brand, which is owned by Diageo but has collaborated with Mr Combs, were typecast as “black brands”.

His legal filing said: “Rather than equal treatment, Diageo has treated Mr Combs and his brands worse than others because he is black.

“Diageo has typecast Ciroc and DeLeon, apparently deciding they are ‘black brands’ that should be targeted only to ‘urban’ consumers.”

In a joint statement, he and the drinks group, which owns brands such as Guinness and Tanqueray, said they have “now agreed to resolve all disputes between them”.

FTSE 100 Index-listed Diageo confirmed on Tuesday that it no longer has any ongoing business relationship with the rapper, producer and entrepreneur.

It is understood the firm reached a financial agreement to take over Mr Combs’ 50% stake in their DeLeon tequila joint venture.

Mr Combs bought the DeLeon brand in partnership with Diageo in 2013.

Diageo also agreed a final payment to end his partnership with Ciroc vodka.

The value of the settlement was not disclosed.