The military-backed government, which took power in January 2007 following months of political violence, moved to bail Khaleda Zia after diplomats, analysts and civil society leaders said that elections - due in December - could not be considered credible if she remained behind bars because her party would boycott and try to thwart it.
Both Khaleda Zia and her rival, Sheikh Hasina, another former prime minister, along with about 170 politicians were arrested in the government's anti-corruption drive.
Hasina, who was released on parole, is currently in the US for medical treatment. She is expected to return home in October before a firm date for the December elections is announced and campaigning starts.
Both women deny any wrongdoing and have accused the interim government of harassing politicians.
The two women lead the country's biggest political parties, with the Bangladesh Nationalist Party (BNP), headed by Khaleda Zia, and the Awami League, headed by Hasina.
Between them they ruled Bangladesh alternately for 15 years to October 2006.
Over the past two months, more than 50 of the detained political leaders, including former ministers and Tareque Rahman, Khaleda Zia's son and her political heir, have been freed on bail so they can contest the upcoming elections.