Amir Hekmati, a dual US-Iranian citizen, was arrested in August 2011, put on trial and found guilty of spying for the CIA. In January 2012, he was sentenced to death.
His lawyer was quoted today as saying the sentence had now been overturned.
"The death sentence was overruled in the country's Supreme Court and reduced to a 10-year jail term," attorney Mahmoud Alizadeh Tabatabaei told the Sharq daily newspaper.
Hekmati, born in the United States to Iranian parents, served as a US Marine and as a private contractor who provided translation services. His family insists he was visiting Iran to see relatives.
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The former Marine's father, Ali Hekmati, who lives in Michigan, is suffering from a brain tumour and has appealed for his son's release.
The UN Human Rights Council's Working Group on Arbitrary Detention in December faulted Iran for not charging Hekmati for six months after his arrest and for letting his lawyer see him only briefly, without access to the case file.
US President Barack Obama raised the case of Hekmati and two other US citizens in a landmark telephone conversation last September with Iranian President Hassan Rouhani.
Since Iran elected the more moderate Rouhani, the Hekmati family has seen hopeful signs with the ex-Marine's grandmother being allowed to visit him.