Taysir Alluni had been sentenced to seven years in prison for collaborating with a Spanish al-Qaeda cell that was accused of helping to prepare the September 11 attacks.
Prior to his conviction, the same court dismissed charges that Alluni was a full member of the cell.
Aljazeera, human rights groups and colleagues continue to maintain Alluni's innocence.
Alluni has suffered ill-health for several years, including high blood pressure and problems with his spine.
A prison service official said the decision to ease prison conditions imposed on Alluni by the court in September 2005 had been taken "out of humanitarian motives and due to his precarious state of health".
Alluni will be allowed to serve the rest of his sentence at home in Spain with an electronic transmitting device attached to his body.
Alluni was Aljazeera's Kabul correspondent during the Afghanistan war, and one of the few journalists allowed by the Taliban regime to operate inside areas it controlled.
He is the only journalist to have interviewed Osama bin Laden, the al-Qaeda leader, after September 11.
Alluni's health has deteriorated in jail, the spokeswoman said.