He was extradited to Italy in 1995 from Argentina, where he had fled and had lived as a schoolmaster in the Andean town of Bariloche.
He has admitted to participating in the killings at the Ardeatine Caves, but said he was obeying orders at the pain of death.
He was sentenced to life in prison, but had been serving the sentence under house arrest for health reasons.
Priebke's work permit had particularly outraged the Jewish community because it allowed him to go out of the office "every day, freely" to satisfy "the indispensable necessities of life", meaning he could go out for lunch.
On Monday, about 100 people gathered outside the lawyer's Rome office shouting "Murderer!".
Priebke arrived at the office on the back of a scooter driven by Paolo Giachini, his lawyer, in front of the protesters.
The ruling by the military court had been criticised by Italian politicians and by Nazi hunters at the Simon Wiesenthal Centre, who said it "insults the family and friends of those murdered by Priebke and his cohorts".
Priebke's lawyer said his client had intended to use his knowledge of German, Spanish, English and French to work as a translator and clerk.