President Conte bought off a similar dispute over pay by the army last year
The authorities in Guinea, faced with mounting protests by soldiers demanding back pay, say they will pay the arrears, some of which go back to 1996.
Each soldier will receive up to GNF5m ($1,140), and subsidies for army rice will be increased, Prime Minister Ahmed Tidiane Souare announced.
Earlier, the defence minister was sacked a day after troops kidnapped the army's deputy head in the pay dispute.
One person was killed but the capital, Conakry, is now reported calm.
On Tuesday shots were fired and shops looted by soldiers based at the Alpha Yaya Diallo base in the capital, Conakry, BBC correspondents reported.
PM Souare, who was only appointed by President Lansana Conte last week, promised that none of the mutinous soldiers would be punished.
He added that he had freed all soldiers who had been detained after a general strike in early 2007 against President Conte's rule.
"I appeal to all our compatriots, and particularly our armed forces: consolidate the foundations of our state and our democratic achievements," said the prime minister in a televised statement.
On Monday, protesting troops had captured Gen Mamadou Sampil when he tried to negotiate with them at the Alpha Yaya Diallo base.
The BBC's Alhassan Sillah in Guinea says shots were also heard in two other garrisons in Kindia, north-east of Conakry, and N'Zerekore in the south east.
There were unconfirmed reports that several people had been injured in the violence.
Following the unrest President Conte summoned senior government officials including Mr Souare for a meeting that lasted more than four hours.
Later a presidential decree read out on public radio announced that Defence Minister Gen Mamadou Bailo Diallo had been fired.
The protests come the week after President Conte also sacked Lansana Kouyate as prime minister.
Mr Kouyate was appointed as part of a deal in 2007 to end deadly riots that paralysed the country, and left at least 130 dead.
He was replaced by Mr Souare, a former minister of mines and ally of Mr Conte.
The dismissal of Mr Kouyate was reportedly one of the soldiers' complaints, as they said they had no-one left to petition.
His sacking sparked protests in Conakry last week.
President Conte, who took power in a coup in 1984, fought off a similar revolt and general strike last year.