Garuda was the only airline to achieve the government's "category one" safety rating, up from a "category two" rating three months earlier.
Budhi Suyitno, director-general of air transportation, said Garuda had been "quick to improve technical, material and personnel support".
The Aviation Safety Network has recorded 48 air accidents in Indonesia in the last decade, 23 of which resulted in fatalities with more than 700 people killed.
March 7, 2007 (above): Garuda airlines Boeing 737 overhsoots runway at Yogyakarta, Java. 21 die, but many others escape burning wreckage.
1 January, 2007: AdamAir Boeing 737 crashes into the sea near Makassar, Sulawesi. 102 passengers and crew presumed dead.
5 September 2005: Mandala Airlines Boeing 737 crashes into residential area shortly after take off at Medan, Sumatra. 101 people on the plane and 44 on the ground killed.
26 September, 1997: Garuda Airbus A300 hits hillside descending into Medan. All 234 passengers and crew killed in Indonesia's worst single air disaster.
Source: Aviation Safety Network
Budget carrier Adam Air, which has been the focus of much attention since one of its aircraft went missing off the island of Sulawesi, was also cleared to continue flying.
The Adam Air Boeing 737, which disappeared from radar on January 1, was carrying 102 passengers and crew at the time. Only only small pieces of wreckage have so far been found.
The airlines which lost their licenses include Jatayu Gelang Sejahtera, Aviasi Upataraksa, Alfa Trans Dirgantara and Prodexim – all of which mostly operated aircraft carrying fewer than 30 passengers.
Germania Trisila Air, Atlas Delta Setia, Survey Udara Penas, Kura-kura Aviation and SMAC, which also fly small aircraft, were given three months to improve safety standards or have their licences formally revoked.
The grounding follow the transport ministry's latest quarterly review of airline safety and comes after a series of accidents in Indonesia's rapidly growing airline industry.
In March, a government audit had found that none of the country's airlines fully complied with civil aviation safety regulations.
In the latest report seven other companies were upgraded from the third and lowest category in the scale to the second, including Adam Air.
A dozen other airlines, including state-owned Merpati Nusantara, and the Indonesian subsidiary of Air Asia, remained in category two, considered to have met minimal international safety standards, Budhi said.
The survey was based on criteria such as surveillance, ramp checks, personnel, department safety, number of accidents and number of serious incidents.
Indonesia's airline industry was deregulated in the 1990s, encouraging many new operators to take to the skies and producing massive passenger growth.
But the recent disasters and other accidents have put pressure on the authorities to improve transport safety.
Experts have blamed old aircraft, poor standards and insufficient investment in infrastructure.