The Polisario Front captured more than 2000 soldiers during a 16-year-long guerrilla war with Morocco over Western Sahara.
The conflict was triggered by Rabat's seizure of the desert territory shortly after colonial power Spain withdrew in 1975.
Most of the POWs have since been released.
Morocco repeatedly has denounced the policy of staggered releases, asking for the unconditional handover of all captives.
"The leadership has decided to release the remaining POWs without conditions," the Polisario Front's representative in Algeria Mohamed Yeslem Bissat said on Saturday.
"The political will is now there and the decision will be carried out once tensions inside Western Sahara ease," he said, adding that a recent crackdown by the authorities inside the territory made the move difficult.
Aljazeera's correspondent in Rabat has quoted informed sources that all the prisoners being held at the Tindouf camps in Algeria will be released.
The International Red Cross Committee has begun checking the identities of the prisoners before they are transported to Morocco in the coming days, the source added.
West Sahara residents have been
detained for anti-Morocco protests
Six Western Sahara residents were sentenced last month to jail terms of one to five years for taking part in anti-Morocco riots. The mineral-rich territory has seen an escalation in clashes with the authorities in recent months.
The soldiers are held in camps in Tindouf in southwest Algeria where the Polisario is based. Morocco's annexation of Western Sahara set off an exodus of the Sahrawi indigenous people to Algeria. About 155,000 refugees live in camps in Tindouf.
Most of the remaining prisoners were captured in the late 1980s, Yeslem Bissat said.
Some of the former prisoners said they had been held for as long as 25 years and were subjected to torture and inhumane living conditions.
The Polisario Front has rejected the accusations.
The war ended in 1991, when the United Nations brokered a ceasefire. It has been trying to solve the dispute ever since.
Rabat has rejected a UN plan for the region to become a semi-autonomous part of Morocco for four to five years, followed by a referendum on independence.