Cambridge University Press has pulped all unsold copies of its 2006 book Alms for Jihad after Kendall Freeman won a High Court libel action against the publisher.
The publisher will also ask 200 libraries to remove the book from their shelves. It is only the fourth time that this method of settlement has been used in a libel case.
Managing partner Laurence Harris managed the case on behalf of claimant Sheikh Khalid Bin Mahfouz, who the book alleged had supported Osama bin Laden and funded terrorist activity.
In a High Court hearing before Mr Justice Eady, Cambridge acknowledged that the allegations were wholly untrue.
The company apologised and paid damages to the Saudi businessman to settle the case.
Harris said: "This case highlights the need for publishers and authors to take greater care to ensure the use of credible sources."
The book is the third to be pulped after proceedings brought by Harris and Sheikh Khalid. At the start of the year Profile Books pulped Unknown Soldiers, while Pluto Press pulped Reaping the Whirlwind in 2004.
In both cases Harris was assisted by associate Antonio Suarez-Martinez. Martin Soames of media boutique Best & Soames led for the defendants.