Scottish councils could be forced to pay back up to £20m for wrongly charging pensioners for care costs.
Elderly people should not have been charged for food preparation
Edinburgh Council has pledged to return £2m to hundreds of OAPs after confusion over free personal care legislation and the issue of food preparation at home.
It was ultimately decided that council did "not have the power to charge clients for assisting with the preparation of food".
Ministers said "adequate resources" were available to deliver services.
A report going to a full meeting of Edinburgh Council next week said the authority should use its reserves to make a one-off payment of £2.1m to 820 people.
Free personal care legislation was introduced in Scotland in 2002 and under new rules councils were told they could not charge for "food preparation and provision of meals" at home.
Edinburgh began charging some elderly people after receiving advice that it could charge in relation to assistance with eating, assistance to manage special diets and preparing specialist meals.
However, in September 2004 the executive wrote to councils saying the guidance was "inconsistent" with the 2002 act.
Confusion still existed and the council decided to commission an independent report last September.
It concluded that, since July 2002, the council "has not had the power to charge clients for assisting with the preparation of food".
Edinburgh Pentlands MSP and former Tory leader David McLetchie on Friday applauded the council for its decision.
Mr McLetchie said: "It is time to finally get a grip on this issue.
"All Scottish councils should refund people who have been wrongly charged. That will cost around £20m."
Edinburgh City Council leader Ewan Aitken said: "Edinburgh's older citizens have a right to know what services are free under the policy.
"The council has taken the initiative to clarify the confusing guidance from the Scottish Executive on meals and food preparation at home.
"Thanks to our action Edinburgh citizens will not have to pay for this in future and will be reimbursed for past charges under the scheme we are setting up".
A Scottish Executive spokeswoman said: "We have provided local authorities with adequate resources to deliver the free personal and nursing care policy, which has been implemented successfully.
"It is up to each local authority to decided how to spend their allocation of block grant based on their local needs and priorities.
"Schedule One of the Community Care and Health (Scotland) Act 2002 makes it explicit that assistance with the preparation of food should not be charged for.
"The terms of the act must of course be observed. We are aware that there are some variations in local authorities' interpretations of the act. That is ultimately a matter for them."