Urgent talks have been under way since the invitation to police to march was withdrawn following the alleged murder of a Sydney gay couple by a serving officer.
NSW Police Commissioner Karen Webb has met with organisers multiple times after the Mardi Gras board made its decision on Monday night.
In a statement on Wednesday, Ms Webb confirmed NSW Police would be allowed to march.Â
"Police have agreed not to march in uniform, in consideration of current sensitivities," she said.
"The Sydney Gay and Lesbian Mardi Gras is an important event on the NSW Police calendar and as commissioner, I am committed to continuing to strengthen the relationship between my organisation and the LGBTQIA-plus community."
The parade runs through Oxford Street in Darlinghurst in the city's inner east on Saturday.
Anthony Albanese and Chris Minns both back NSW Police being able to march in the parade. (Steven Saphore/AAP PHOTOS)
Debate over police participation in the Mardi Gras parade has intensified since the arrest of Senior Constable Beau Lamarre-Condon, 28, over the alleged murders of Jesse Baird, 26, and his boyfriend Luke Davies, 29.
"Our community needs space to grieve the loss of Jesse and Luke who, before this tragedy, would have been here celebrating with us at the festival," the Mardi Gras board said earlier this week.
The killings occurred at Mr Baird's home in inner-city Paddington, not far from where the parade will take place.
Lamarre-Condon previously marched in the parade with the NSW Police contingent.
Australian Federal Police officers have decided not to march, abandoning plans to join their NSW counterparts.
"This decision was not taken lightly, but we acknowledge how some in the community are feeling about the blue uniform," an AFP spokesperson said in a statement.
Pride in Protest spokeswoman Charlie Murphy described police marching at Mardi Gras as "salt on open wounds".
Labor government minister Penny Sharpe on Wednesday backed police marching, recalling her experiences volunteering at Mardi Gras more than three decades ago.
"I remember the time when the police didn't march, didn't want to march and when they stepped up and said 'we want to be part of this'," she told ABC Radio.
"We never get a better outcome by excluding the people who are in the best place to change institutions."
Liberal upper-house MP Jacqui Munro raised concerns about taxpayer money going towards the event if police were excluded and said she hoped for a resolution that would allow them to march.
"Police should absolutely march and I think they should be allowed to march in uniform ... because it demonstrates that there is progress in these organisations," she said.
Prime Minister Anthony Albanese and Premier Chris Minns have both backed police marching in the parade, as has independent state MP Alex Greenwich, whose electorate includes the Oxford St precinct where the event will take place.
Both leaders are expected to join the parade on Saturday.
Mardi Gras organisers have been contacted for comment.
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