Umar Patek was a leading member of Jemaah Islamiah, which is blamed for the bombings at two nightclubs in Kuta Beach.
Indonesian authorities have said Patek was successfully reformed in prison and they will use him to influence other militants to turn away from terrorism.
Patek, 55, whose real name is Hisyam bin Alizein, received a total of 33 months of sentence reductions, which are often given to prisoners on major holidays, said Rika Aprianti, spokeswoman for the Corrections Department at the Justice Ministry.
Most recently, he was granted a five-month reduction on August 17, Indonesia's Independence Day.
That meant he has fulfilled the parole requirement of serving two-thirds of his current sentence, she said.
Patek was found guilty by the West Jakarta District Court of helping build a car bomb that was detonated by another person outside the Sari Club in Kuta, moments after a smaller bomb in a backpack was detonated by a suicide bomber inside the nearby Paddy's Pub nightclub.
The attacks killed 202 people - mostly foreign tourists - including 88 Australians, leaving a deep scar in that country.
Australian Prime Minister Anthony Albanese recently described Patek as "abhorrent" and said his early release would cause further distress to Australians who were affected by the bombings.
Patek was sentenced to 20 years in prison a decade after the bombing.
He left Bali just before the attacks and spent nine years on the run.
