The Department of Health, Social Services and Public Safety (DHSSPS) tried to block Dr Kieran Deeny from joining the group because he holds a seat in the Northern Ireland Assembly.
The department claimed Dr Deeny could not join the commissioning group because this would conflict with his role as an assembly member.
But in a statement last week the DHSSPS said: 'Following leave granted to Dr Deeny to have a judicial review, the department re-examined its decision. The department has now recognised that it had overlooked an important legal obligation.'
The department admitted there were 'no grounds in law' to bar Dr Deeny from the post, and said he could take it up.
Dr Deeny said: 'I was prepared to take this all the way in court.'
He said he was in a strong position as an assembly member and as part of a commissioning group to 'make sure the views of the public are heard'.
Local commissioning groups have been set up across Northern Ireland as part of a restructuring of its health service.
Four regional health boards will be amalgamated and the commissioning groups will take on the role of buying health services.
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