Cllr Dilks, a Labour Party press officer, was wrongly accused of kicking a teenage girl in an article published by the Mail-on-Sunday last February.
The totally untrue accusation was made by Richard Gibbs, who had worked for a short period as a Labour Party trainee organiser before defecting to the Conservative Party.
Cllr Dilks sued the Mail-on-Sunday and Richard Gibbs for libel.
In the High Court today, lawyers for the Mail-on-Sunday and Richard Gibbs admitted there was no truth in their story.
In an agreed statement, senior Judge Mr Justice Eady was told:
"The Mail-on-Sunday accepts that neither Mr Dilks nor any of his colleagues kicked anyone or knows of any such incident occuring."Both Mr Gibbs and the Mail-on-Sunday apologized to Cllr Dilks and agreed to pay him substantial damages and all legal costs.
The Mail-on-Sunday will also publish an apology this weekend on their website and in their newspaper.
Outside the High Court, Cllr Dilks said:
“I was not prepared to let the Mail-on-Sunday get away with publishing lies which were damaging to my reputation as a parent, as an elected public servant and as a professional communications officer.
"It has taken nine stressful months to set the record straight, but today I have been totally vindicated and have won everything I set out to achieve in my libel action.
"It is a huge relief that those responsible for this outrageous accusation finally admitted in the High Court today that there was not a grain of truth in their story.
"It was only after the Mail-on-Sunday was served with a libel writ that they bothered to check the facts and discovered that Richard Gibbs' claim that I had kicked a young girl was absolutely baseless.
"When I trained as a journalist in Lincoln 35 years ago, every word had to be checked and double-checked before it was published. In this case, the Mail on Sunday failed to follow the same high standards.
"I wish to thank my family and the Labour Party for backing me, my legal team, and many friends and colleagues - some across the political divide - who supported me throughout this action to set the record straight.
“No employee of any organization should be subjected to the anxiety and stress caused when damaging lies are printed in a national Sunday newspaper."
As well as working as the Labour Party's Head of Regional Media, Cllr Dilks represents Deeping St James on Lincolnshire County Council where he is opposition spokesman for education.
He also serves as a member of Lincolnshire Police Authority and Deeping St James Parish Council.
Phil is married and has two grown up daughters - both trained primary school teachers. A former journalist, he was previously National Press Officer for the NSPCC.
Photo shows Cllr Dilks (centre) with his legal team Gerald Shamash of Steel & Shamash Solicitors and Roy Kennedy, Director of Legal Compliance, The Labour Party.