Birmingham Metropolitan College, the third largest in Britain with 44,000 students, insisted the move was designed to protect students and had introduced the policy "for security reasons" eight years ago.
The college confirmed staff had "modified" the policy to allow individuals to wear specific items of clothing "to reflect their cultural values".
On Thursday night, in the face of a huge social media campaign organised by students, a 9,000-name petition and the threat of a demonstration, the college said it had decided to modify its stance and the niqab, a traditional veil covering the face, is now un-banned.
The decision came just a day after British Prime Minister David Cameron had backed the college for outlawing veils.
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Tory MP Philip Hollobone, who has tabled a private members bill that would make it an offence to wear clothing obscuring the face in public, said the change of heart was a matter of "shame" and made the argument for legislation banning the niqab in public more urgent.
He had climbed down after initially refusing to allow a woman accused of intimidating a witness to give evidence in a trial unless she uncovered her face.