The parliament in Strasbourg also called on the European Commission and the 28 member states to send a "strong message" to Russia to end its crackdown on freedom of expression and assembly.
Navalny, who has announced plans to run for president in the 2018 election, was among hundreds arrested in Moscow during one of the country's biggest unauthorised rallies in recent years.
The resolution adopted by the parliament pressed "the Russian authorities for the immediate release of and dropping of charges against Alexei Navalny and all the peaceful protesters, journalists and activists detained in the anti-corruption rallies."
The measure also condemned what it called "the constant efforts to silence" Navalny and threw its support behind his anti-corruption campaign.
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Broadening its points, the parliament called for EU bodies - the executive commission, the External Action Service diplomatic arm and member states - to join forces to press Russia to abide by international law.
It called on these bodies "to take systematic action against any attempted money laundering or illegal assets inside the EU."
It also called for EU bodies to send a "strong common message on the role of human rights in the EU-Russia relationshiop and the need to end the crackdown on freedom of expression, assembly and association in Russia."
Navalny's report on Medvedev was behind the wave of protests that swept the country on March 26 in one of the biggest challenges to President Vladimir Putin's rule in years.
Over a thousand people were detained in Moscow alone, with dozens sent to jail for up to 25 days, including Navalny, whose sentence runs until next week.
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