They had officially decided to separate in October last year and filed a joint divorce petition at the court.
The settlement came after several round of talks. It was agreed that the actress will withdraw her petition against Chandra and his family under the Domestic Violence Act.
According to George Sebastian, a Kerala Congress leader who mediated in the talks, both parties appeared in the court May 24 to finalise the proceedings.
Kavya, a leading actress, and Chandra, a computer engineer, were married in February 2009.
Born in Nileshwaram in Kasaragod district, the actress entered the industry as a child artist in 1991. She then acted with leading stars like Mammootty, Mohanlal, Jayaram and Dilip.
Her popular films include "Meesha Madhavan", "Madhamabhi", "Classmates" and "Ananthabhadram".