The city of Norwalk has agreed to repeal its ban on homeless shelters and will pay $250,000 toward new affordable housing developments to settle a state lawsuit, officials said Friday.

The city had prohibited shelters along with laundromats, payday lenders and other businesses that predominantly serve low-income residents.

The settlement, if approved by the court, also requires Norwalk to create an affordable-housing trust fund and undergo ongoing state monitoring.

“The Norwalk city council’s failure to reverse this ban without a lawsuit, despite knowing it is unlawful, is inexcusable,” Gov. Gavin Newsom said in a statement.

“No community should turn its back on its residents in need — especially while there are people in your community sleeping on the streets. No city is exempt from d

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