The Southern Poverty Law Center took a devastating hit to its credibility and reinforced its reputation for unfairly wielding the “hate” label Monday by agreeing to pay millions of dollars to an organization previously included on a list of “extremists.”

In a stunning settlement, SPLC President Richard Cohen issued an apology and agreed to pay $3.375 million to the British-based Quilliam Foundation and founder Maajid Nawaz after they appeared in a since-deleted 2016 journalists’ guide to “anti-Muslim extremists.”

The agreement, reached after Mr. Nawaz threatened to sue, prompted the center’s many critics on the right to reissue calls for media outlets and companies, which include Google and Amazon, to stop relying on the center for neutral “hate group” assessments.

Tony Perkins, president of the Family Research Council, one of 954 groups listed on the SPLC’s “hate map,” argued that the settlement terms “leave the media and big business with no excuse in continuing to use the SPLC as an objective, independent source.”

“The Southern Poverty Law Center has long been the Left’s pit bull — resorting to smears and a hate map to advance its liberal political agenda,” Mr. Perkins said in a statement. “But its falsehoods and dangerous tactics have finally caught up with them — with the group doling out millions in a defamatory settlement.”

Another group on the “hate map,” the Alliance Defending Freedom, which won a 7-2 Supreme Court decision this month on behalf of a Christian baker who refused to create a cake for a same-sex wedding, blasted the SPLC for “sloppy mistakes” that have “ruinous, real-life consequences.”

“It’s appalling and offensive for the Southern Poverty Law Center to compare peaceful organizations which condemn violence and racism with violent and racist groups just because it disagrees with their views,” said ADF Vice President Jeremy Tedesco. “That’s what SPLC did in the case of Quilliam and its founder Maajid Nawaz, and that’s what it has done with ADF and numerous other organizations and individuals.”

In a video apology, SPLC President Richard Cohen said that the center was wrong and offered “our sincerest apology” for including Quilliam in A Journalist’s Manual: Field Guide to Anti-Muslim Extremists.

“Although we may have our differences with some of the positions that Mr. Nawaz and Quilliam have taken, they are most certainly not anti-Muslim extremists,” Mr. Cohen said in the video.

Mr. Nawaz, a former Islamic extremist turned liberal reformer, landed on the list for offenses such as tweeting a cartoon of the Prophet Muhammad; calling for Muslim women to stop wearing face veils in “inappropriate” public places; and including a list of British Muslim groups as part of a report for a top security official.

The SPLC’s guide to “anti-Muslim extremists,” reportedly prepared in conjunction with the leftist Media Matters for America, also included Hoover Institution fellow Ayaan Hirsi Ali, a Somalia-born critic of Islamism who was forced to undergo genital mutilation.

In addition to the payment, the settlement requires the SPLC to remove the field guide from its website and social media, and keep the video and written apologies online for at least two years.

Mr. Nawaz thanked those who contributed to the litigation fund for the London-based group, which bills itself as “the world’s first counterextremism organization.”

“With the help of everyone who contributed to our litigation fund, we were able to fight back against the Regressive Left and show them that moderate Muslims will not be silenced,” Mr. Nawaz said. “We will continue to combat extremists by defying Muslim stereotypes, calling out fundamentalism in our own communities, and speaking out against anti-Muslim hate.”

Despite the criticism, the SPLC has expanded its influence in the past few years by partnering with Amazon and social media giants Facebook and Google-owned YouTube to identify “hate” on their platforms.

Last month, Amazon removed the ADF from its charitable Amazon Smile program, explaining that the company uses the U.S. Office of Foreign Assets Control and the SPLC to “determine which charities are eligible.”

Megan Meier, a partner at Clare Locke, the law firm representing Mr. Nawaz, lamented that the apology came only after the legal threat.

“It’s a shame that it took impending litigation for the Southern Poverty Law Center to finally set the record straight and admit it was wrong all along,” Ms. Meier told National Review. “Quilliam and Mr. Nawaz do admirable work, and we are honored to have restored their reputations and achieved this victory on their behalf.”

At the same time, the retreat caused concern even among SPLC’s critics about the First Amendment implications.

“It sounds like an apology for drawing an irrational, unfair conclusion, which is simply not defamation,” said Popehat’s Ken White, who described the apology as an “unconditional surrender.”

“Moreover, Nawaz specifically said he was going to sue to fight people who use labels like ‘racist’ and ‘Nazi.’ But such labels are classic opinion,” he said.

Robert Spencer, director of Jihad Watch, also identified as a “hate group” by the SPLC, said the apology was unlikely to change the situation for others because Mr. Nawaz is regarded as a political liberal.

“It’s good to see the hard-Left smear machine the SPLC lose a battle, but it is likely that it only gave in to Nawaz because he is a Leftist,” Mr. Spencer said in a post. “The rest of us on the list continue to be defamed and marginalized by our presence on the list, since the establishment media continues to cite the SPLC as if it were a reliable source.”

The apology also the SPLC “was wrong to include Maajid Nawaz and the Quilliam Foundation in our Field Guide to Anti-Muslim Extremists. Since we published the Field Guide, we have taken the time to do more research and have consulted with human rights advocates we respect. We’ve found that Mr. Nawaz and Quilliam have made valuable and important contributions to public discourse, including by promoting pluralism and condemning both anti-Muslim bigotry and Islamist extremism.

“Although we may have our differences with some of the positions that Mr. Nawaz and Quilliam have taken, they are most certainly not anti-Muslim extremists. We would like to extend our sincerest apologies to Mr. Nawaz, Quilliam, and our readers for the error, and we wish Mr. Nawaz and Quilliam all the best.”