0651 GMT February 25, 2020
The historic announcement from Buckingham Palace on Saturday follows more than a week of intense private talks aimed at managing the fallout of the globetrotting couple's shock resignation from front-line royal duties, AFP reported.
It means Queen Elizabeth II's grandson Harry and his American TV actress wife Meghan will stop using the titles "royal highness" – the same fate that befell his late mother Princess Diana after her divorce from Prince Charles in 1996.
"Following many months of conversations and more recent discussions, I am pleased that together we have found a constructive and supportive way forward for my grandson and his family," the 93-year-old monarch said in a statement.
"I recognize the challenges they have experienced as a result of intense scrutiny over the last two years and support their wish for a more independent life."
Her comments referred to battles with the media that prompted Harry and Meghan to sue several newspapers in October over intrusions into their private lives.
The Queen said she was "particularly proud of how Meghan has so quickly become one of the family" and wished the couple "a happy and peaceful new life".
"As agreed in this new arrangement, they understand that they are required to step back from royal duties, including official military appointments. They will no longer receive public funds for royal duties," another statement said.
The settlement added that the two will also repay £2.4 million ($3.1 million) of taxpayer money spent on renovating their Frogmore Cottage home near Windsor Castle.
Much of British media interpreted the ruling as the Queen's punishment for Harry and Meghan's wayward ways.
The Queen "brought down the iron fist", Sky News' royal commentator Alastair Bruce said.
"Make no mistake, Saturday night's statement represents the hardest Megxit possible," The Daily Telegraph newspaper said,
The palace would not comment on who ends up paying for Harry and Meghan's security detail in Canada, where the couple are expected to spend much of their time – an issue of intense public debate.
It also failed to mention whether the couple would be allowed to benefit financially from future royalties and franchise fees.
The queen's announcement is her second on the royal crisis since Harry and Meghan's effective resignation on March 8.
"We have chosen to make a transition this year in starting to carve out a progressive new role within this institution," the couple said at the time.