Social Democrat economic policy spokesperson Tommy Waidelich said earlier this week that the party was still opposed to Swedish participation in the pact.
Last week, former party chief Håkan Juholt explained that the pact had too many “uncertainties” and “represented a backdoor to joining the eurozone”.
But within hours of unveiling Stefan Löfven as the consensus candidate to take over as the new Social Democrat leader, the party announced on Thursday it had struck a deal with the government paving the way for Sweden's participation in the eurozone pact.
“The budget pact in itself is far from enough to solve Europe's crisis. But it's important for Sweden to secure its influence without being forced to abide by binding commitments,” party secretary Carin Jämtin said in a statement.
According to Jämtin, the Social Democrats had four conditions for dropping their opposition, all of which the government has now agreed to push for at the negotiating table in Brussels next week.
They include demands that Sweden not be required to transfer any decision-making power on its budget from the national parliament and that Sweden be granted a seat at eurozone summits where the pact is up for discussion.
In addition, Reinfeldt's minority government has also agree to push for labour market guarantees and maintaining Sweden's current exemption from adopting the euro even if the budget pact eventually becomes a part of the EU treaty.
While Sweden is not a eurozone member, having rejected adoption of the common European currency in a 2003 referendum, it has among the strongest public finances in Europe and is therefore seen as an influential player in European efforts to improve financial discipline.
Eurozone versus full EU summits are a sensitive topic for some governments, notably France, which refuses to grant access to the 10 other EU states more than once a year.
In the shadow of the Social Democrats efforts to choose a new leader, the party has been involved in intense negotiations with the government ahead of Friday's meeting of the Riksdag's EU committee, considered the last opportunity to reach an agreement ahead of an EU summit scheduled for Monday in Brussels.
Neither Reinfeldt nor finance minister Anders Borg commented on Thursday's agreement with the Social Democrats, with a Borg spokesperson saying the prime minister would likely discuss the issue in conjuction with Friday's meeting of the EU committee.
The so-called fiscal "compact" to tighten budgetary discipline and economic governance between the 17 eurozone nations is one of the main issues on the agenda when leaders of the 27-nation EU meet in Brussels on Monday.
All EU states save Britain have agreed to consider signing the fiscal compact, the aim of which is to avoid a repeat of the debt crisis in the eurozone.
The pact is expected to be agreed in principle Monday before formal acceptance at an EU summit on March 1 and 2.