Hong Kong-based John Short was arrested after leaving "Bible tracts" in a Buddhist temple in the capital Pyongyang during a tour.
The North's state-run KCNA news agency said the "generous" decision to release and expel Short had been taken in light of his advanced age and a signed "confession" and apology.
A copy of Short's statement was released along with photos showing him affixing his thumb in red ink to the document which he also signed and read out.
"I realise that my actions are an indelible hostile act against the independent right and laws of the (North)," the confession read.
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Confessions and self-criticisms -- scripted by the authorities -- are normally a pre-requisite for detained foreigners seeking release in North Korea.
Short's statement stated that US and other western media reports labelling the North as a closed country without religious freedoms were "inaccurate and wrong".
Although freedom of worship is enshrined in North Korea's constitution, it does not exist in practice and religious activity is severely restricted to officially-recognised groups linked to the government.
In his statement, Short also admitted distributing religious texts on the Pyongyang subway during a previous tour to the North in 2012.
Australia has no diplomatic representation in North Korea, but its foreign ministry said it had confirmed Short's release through the Swedish embassy in Pyongyang.
"Clearly this is welcome news," the ministry said.
Short's wife, Karen Short, told AFP in Hong Kong that she was "amazingly thankful".
She said the Australian authorities had told her he was believed to be on the flight to Beijing.