The 42-year-old has been under arrest under section 309 of the Indian Penal Code for attempt to commit suicide.
Judicial magistrate (Imphal East) Wisdom Kamodang ruled that the prosecution has failed to give any evidence that she is trying to commit suicide and ordered that Sharmila be discharged in the case.
Imphal West SP Jhaljit told PTI she has been released from prison according to court orders.
After her release in the evening, Sharmila again sat on fast under a shed in the local market.
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On 19 August 2014, another Manipur court had ordered Sharmila to be released stating that her hunger strike was a "political demand through lawful means". However, she was re-arrested three days later for allegedly attempting to commit suicide.
To keep her alive she is forcibly nose-fed in Imphal's Jawaharlal Nehru Hospital, a special ward which acts as a prison for her.
International human rights body Amnesty has appealed to the authorities saying she should not be arrested once again.
"The judgement must end the farcical cycle of arrest and re-arrest that this brave activist has faced for so long. Authorities must not detain Irom Sharmila again, but engage with the issues she is raising."
Last month, the central government had said they have decided to repeal Section 309 of the Indian Penal Code, which makes attempting to commit suicide punishable with imprisonment for up to one year.
Sharmila had been arrested, released and then re-arrested from time to time on the charge of attempting to commit suicide. The maximum punishment under Section 309 of the IPC is a one-year jail term.