Inspectors claim Argyll and Bute Council is “significantly different” to when it was heavily criticised in a government report last year.
Audit Scotland said the local authority had made a number of improvements, but that there was still progress to be made.
Inspectors said “long-standing political and personal differences” between a small number of members are “damaging the council’s image and reputation”.
But they also added there had been “considerable member development activity” leading to “improved relationships between most councillors”.
Administration leader Councillor Dick Walsh welcomed the report but insisted members would continue to work for “ongoing improvement”.
He said: “We committed to meeting challenge and achieving progress when Audit Scotland first visited, and this report shows that is exactly what we are doing.
“We have taken action that is delivering change where needed. We have structures, support and also attitudes in place that mean we are managing business more effectively. We have plans in place for on-going improvement.
“‘This has been achieved through the determination of councillors across the political spectrum, and the commitment of officers who are working hard every day for Argyll and Bute.
”We are pleased that Audit Scotland has recognised the progress made. We want to achieve more.”
But SNP Councillor James Robb said the report revealed that administration members had “stuck their heads in the sand” over the local authority’s finances.
The Audit Scotland report suggested that “the council’s approach to meeting future financial challenges needs to improve”.
Mr Robb said: “The report confirms the Tory, LibDem, Independent administration stuck its head in the sand for the last two years and spent as if there was no tomorrow.
“The administration tried to ignore the looming financial problems but now forced to face reality, it has panicked and proposed arbitrarily slashing services without any idea of the consequences.”
The summary from the Audit Scotland report said : “It will take time and commitment to achieve real and lasting improvements in culture, behaviour and understanding, but Argyll and Bute is a significantly different council now than it was when we reported in 2013, with a consequent reduction in risk.”
The report will be considered at the council’s accounts commission later today.