Cheam Channy was released from prison on Monday after receiving a royal pardon the night before.
Met by hundreds of cheering supporters, he was blessed by monks before he said: "I'm very happy and I thank my supporters."
Cheam Channy is a prominent member of the Sam Rainsy Party, whose leader also received a pardon on Sunday.
Cheam Channy and Sam Rainsy were originally arrested along with another politician, Chea Poch, and stripped of their parliamentary immunity in February last year.
Sam Rainsy fled to France and was handed an 18-month prison sentence in absentia for defaming Hun Sen, the Cambodian prime minister and Prince Norodom Ranariddh, the National Assembly president.
Cheam Channy was accused of forming an illegal armed group and sentenced to seven years.
However, in a surprise move, Hun Sen petitioned King Norodom Sihamoni, who slashed four years from the sentence making him eligible for a royal pardon.
Sam Rainsy said in a letter on Friday he regretted accusing Hun Sen of trying to kill him in a 1997 grenade attack on an opposition rally.
In reply, Hun Sen said the letter "means an end to all the problems between you and me".
Kong Korm, the acting director of the Sam Rainsy Party, welcomed the pardons.
King Sihamoni slashed four years
from Cheam Channy's sentence
"We welcome the release of Cheam Channy. National reconciliation is going quickly because the Cambodian leaders know how to resolve national problems. This is a very important step, that Cambodian leaders work hand in hand to serve the nation and the people," he said.
Fears had been growing over the long-term hopes for democracy in Cambodia.
Hun Sen, a former Khmer Rouge soldier who has run Cambodia for two decades, has recently been accused of increasing authoritarianism by international observers due to the arrest of several human-rights activists on defamation charges.
After recently deciding to drop charges against the activists, Hun Sen performed a U-turn and decided to press ahead with criminal proceedings.