"The accused has been granted default bail as investigating agency failed to file charge sheet against the accused in the legally permitted time of 90 days," said special CBI judge K B Gujarati in his order.
"He has been ordered to be released on bail after he surrenders his passport before the court and submits surety of Rs 50,000," the judge said.
Tirodkar, who was sent to judicial custody following his arrest on July 5, had been denied bail last month.
He had argued then, in his bail plea, that Maharashtra and Gujarat police officials were behind his arrest, and their motive was to shield some powerful culprits in this case.
Jamal, a resident of Bhavnagar, was killed in encounter by Gujarat Police in Ahmedabad on January 13, 2003. Police claimed he was a Lashar-e-Taiba operative and was on "mission" to kill Chief Minister Narendra Modi and VHP's Pravin Togadia.
The genuineness of the encounter became an issue after Tirodkar filed an affidavit before a court in Mumbai that he was witness to Jamal's hand-over to Gujarat Police by the 'encounter specialist' officer Daya Nayak of Mumbai police a few days before the alleged encounter.