Asian Cricket Council chief executive Syed Ashraful Huq said the two met in the dressing-rooms after the Asian Tsunami Relief Appeal match here on Monday which raised 14.6 million dollars (11 million US) towards helping the tsunami victims.
Howard last year upset Sri Lankan cricket when he referred to Muralitharan as a "chucker", over his much-publicised double-jointed bowling action.
Muralitharan subsequently refused to tour Australia with the Sri Lankan team last July.
But Huq, the manager of the Asian XI, said the spirit of goodwill of the charity match had also extended to the post-match celebrations as he introduced Howard to the Asian XI players.
"I took the prime minister to Murali and he said 'Murali, welcome to Australia. We are very happy that you are back'," Huq said Tuesday.
"Murali smiled and so that thing has blown over also. These sorts of occasions can do that."
Muralitharan, who has the most one-day international wickets with 369 from 238 matches, has been taunted by Australian fans over his bowling action with sections of crowds taking delight in shouting "no-ball" every time he bowled.
But on his return to the ground where he was first no-balled by Australian umpire Darrell Hair in 1995, the Sri Lankan was greeted warmly by the 70,101 sellout MCG crowd on Monday.
It may be a significant moment in the thawing of relations between the champion spinner and Aussie fans and lead to Muralitharan shedding his reluctance to play in Australia.
"The fact that Murali went on to the ground and was cheered by everybody - he was in a completely different mood after that," Huq said.
Cricket Australia chief executive James Sutherland said it was pleasing that Muralitharan had been so warmly received by Australian fans.
"Not just Murali, but I think everyone enjoyed a fantastic reception from the crowd last night - there was just such a feeling of goodwill and positive energy," Sutherland said.
Sri Lanka are not scheduled to tour Australia again until 2008.