Kirk Coningham, a spokesman for Immigration Minister Amanda Vanstone, confirmed Chen Yonglin, his wife and six-year-old daughter had been granted a permanent protection visa -- typically given to people fleeing persecution in their homeland.
Chen, who has been in hiding since fleeing China's Sydney Consulate, could not immediately be reached for comment.
Since going into hiding shortly after his defection, Chen has on several occasions emerged to hold news conferences where he has claimed to fear for his life if forced to return to China.
Coningham said Chen's case had been considered in the same way as up to 1,000 other Chinese nationals who seek asylum in Australia every year.
"His circumstances obviously are unusual but he's just gone through the normal process," Coningham said. "There hasn't been any ministerial intervention or anything like that, it has just been the normal process for a protection visa."
He declined to give reasons why Chen's application was approved, citing privacy concerns, and said he did not know how many of the between 700 and 1,000 Chinese applications made each year succeed.
Greens Party Sen. Bob Brown, who campaigned for Chen to be allowed to remain in Australia, said the diplomat was delighted by the decision.
"The granting of permanent visas for Chinese diplomat and defector Chen Yonglin and his wife and daughter is due to huge public sentiment which swept in to rescue him," Brown said in a statement.
"Chen and his family will be valuable Australian residents. I congratulate him," he added. "His conscience and his courage have been rewarded by this nation if not its government."
Last month, Chen told reporters he feared he already had been deserted by Australian authorities who were more concerned about sealing a multibillion dollar free trade deal with Beijing than with protecting his human rights.
Australian officials declined to comment on that claim.
China already is Australia's third-largest trading partner, with trade worth about 29 billion Australian dollars (US$21.4 billion; 17.96 billion) a year and Australia is set to begin delivering liquid natural gas to China's Guangdong province next year as part of a long-term A$25 billion (US$18.4 billion; 15.45 billion) supply contract -- the country's largest export deal.
