Qantas will remain a majority Australian-owned company with the government forced to abandon plans for unlimited foreign ownership of the airline.
Opposition Leader Bill Shorten on Tuesday welcomed news that the government has adopted a Labor proposal that foreign interests not hold more than a 49% stake in the national carrier.
The coalition moved legislation to open investment after complaints from the airline about the "unfair" Qantas Sale Act which limits at 35% a combined holding by foreign airlines and 25% by any single foreign investor.
The Labor proposal removes the lower caps, thus allowing greater but not majority foreign investment.
"Qantas should remain majority Australian-owned and I'm pleased the Abbott government has given in and accepted Labor's proposal," Mr Shorten said.
The government was forced to compromise on its plan after failing to find upper house support for the legislation, Fairfax reports.
Although the federal government has given up on plans to allow unlimited foreign investment in the airline, agreeing to the opposition's 49%. it plans to lift restrictions under the Qantas Sale Act that prevent a foreign investor from owning more than 25% of the company and cap combined ownership by foreign airlines at 35%.
Qantas said the decision was "an improvement", but would like the government to go further and abolish foreign ownership restrictions.
"It's positive that there's general agreement that Qantas is disadvantaged by the Sale Act and that change is needed," the airline said in a statement on Wednesday.
"While removing all restrictions that apply only to Qantas remains our preference for levelling the playing field, changing the 25% and 35% limits would represent an improvement on the status quo."
Qantas has argued the restrictions on foreign ownership make it harder to compete with rival Virgin Australia, which is majority owned by three foreign airlines: Air New Zealand, Etihad and Singapore Airlines.
The two airlines have been locked in a bruising battle for market share in Australia that saw Qantas post a record $252 million underlying loss.