Abd al-Hadi al-Khawaja, vice-president of the Bahrain Centre for Human Rights, was arrested in September after making remarks critical of the government's management of the economy.
The official, speaking on condition of anonymity, said on Sunday that the king's decree stipulated that "the imprisonment [of al-Khawaja] should be limited to the period preceding the publication of this decree."
The activist was pardoned on the same day he was sentenced.
The trial of al-Khawaja and the closing of his organisation on the grounds that its activities violated the small Gulf kingdom's associations law had raised international concern and prompted protests outside the court.
Al-Khawaja, who pleaded not guilty to the charges, refused to attend the trial and was not present when the verdict and sentence were announced on Sunday.
Scores of supporters gathered outside the court in support of al-Khawaja and against the prime minister.
Demonstrators held banners that read: "Free Hadi" and "Prime Minister: Leave people alone", while shouting "Khalifa, step down".
Hunger strikeAl-Khawaja had been on hunger strike since 14 November to press for the release of 13 people who were arrested last month during a demonstration in his support.
The accused had called on PM
Shaikh Khalifa (L) to resign
His wife, Khadija al-Musawi had earlier denounced Sunday's ruling as "unjust" saying "Abd al-Hadi would not appeal against the verdict because he considers the law unjust and that he cannot benefit from a fair process".
Al-Khawaja was briefly hospitalised last week after collapsing in prison from weakness, his wife added.
Defence lawyers, who had protested against the constitutionality of the legal process, boycotted Sunday's session as well as previous hearings, at al-Khawaja's request.
"Article 165 of the penal code, accusing al-Khawaja of 'inciting hatred against the regime', is against Article 23 of the constitution on freedom of expression," lawyer Muhammad Ahmad said last month.
Bahrain has taken bold steps towards democratisation, putting it ahead of its neighbours in the conservative region.
But ultimate power remains in the hands of the king, Shaikh Hamad bin Isa al-Khalifa. The prime minister is the king's uncle.
With a population of 739,000 according to UN estimates, Bahrain officially changed its status from an emirate to a monarchy in February 2002.