The Supreme Court ruling also said he had to leave the country within the next 15 days but did not specify to where.
He was serving two life sentences in Nepal for the murders of an American and Canadian backpackers. Life sentences in Nepal are 20 years.
The court document said he had already served more than 75 per cent of his sentence, making him eligible for release, and was suffering from heart disease.
It was not clear when he would actually walk out of the prison as a free man but likely within the next few days.
The Frenchman has in the past admitted to killing several Western tourists and he is believed to have killed at least 20 people in Afghanistan, India, Thailand, Turkey, Nepal, Iran and Hong Kong during the 1970s.
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However, his 2004 conviction in Nepal was the first time he was found guilty in court.
Sobhraj was held for two decades in New Delhi’s maximum-security Tihar prison on suspicion of theft but was deported without charge to France in 1997.
He resurfaced in September 2003 in Katmandu.
His nickname, The Serpent, stems from his reputation for being a talented disguise and escape artist.