Chief Constable George Hamilton will not contest a finding of bias in the original RUC investigation into the McGurk's Bar bombing, the High Court has been told.
The north Belfast pub was blown up by the UVF in December 1971 killing 15 people.
Four years ago, a Police Ombudsman investigation identified investigative bias in how the RUC handled the case.
As a result relatives of those killed launched a legal action.
The 2011 Police Ombudsman investigation said the police had wrongly briefed the government and media that the IRA was responsible for the attack.
The investigation also concluded that detectives failed to properly probe loyalist paramilitary responsibility for the bombing because they were "so focused on the mistaken idea that the IRA was to blame".
But a separate review carried out by the now defunct Historical Enquiries Team (HET) reached a different verdict.
It claimed there was no evidence of any bias on the part of the RUC investigators.
Those findings were challenged by Brigid Irvine, whose mother, Kathleen, was among those killed in the attack.
Her legal team sought a judicial review in a bid to have the HET report quashed, claiming its conclusions were irrational.
Lawyers for the PSNI confirmed the new position in the case in court on Friday.
"I can advise the court that the chief constable does not wish to contest the issue regarding investigative bias and findings by PONI (Police Ombudsman for Northern Ireland) in respect of the same," the lawyer said.
A lawyer for Ms Irvine said the "change of heart" was welcomed by his client.
Proceedings were adjourned to next month, when a final resolution to the case is expected.
Although Ms Irvine did not attend the hearing, her sister, Pat, described Mr Hamilton's decision as "courageous".
"We welcome that and thank him for his bravery," she said outside court.
"It makes you wonder what exactly has made him come to his conclusion that didn't make (previous Chief Constable Matt Baggott) come to the same conclusion."
She said the families had been fighting for 44 years to find out the full circumstances surrounding the bombing.
"All we have ever asked for is the truth, and we will continue to ask for it until we get it," she said.
Ms Irvine's solicitor also questioned what information Mr Hamilton had which his predecessor was denied access to.
He also thanked the chief constable for standing by a commitment to reconsider the issues in the case.
"We believe he has made a significant decision today, and the right one," he said.
"All too often we have seen how the state will seek to protect itself against any allegation of wrongdoing to ensure they avoid any liability in the criminal or civil courts.
"We can only hope that today's announcement by the chief constable marks a departure from the policy of delay, deny and defend at any cost, which is a feature now of so many conflict-related cases."