Han Myeong-Sook, now 73, was prime minister for a year from April 2006 under the liberal government of then-president Roh Moo-Hyun.
She was the first woman to hold the post of prime minister in South Korea, and also the first former premier to be put behind bars.
A few years later Park Geun-Hye -- currently on trial for corruption after being ousted in a sprawling scandal -- became South Korea's first woman president.
Han was convicted in 2015 of receiving 880 million won (then USD 760,000) from a businessman in illegal campaign funding for her eventually unsuccessful 2007 bid to secure her party's presidential nomination.
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She was greeted by politicians and hundreds of supporters as she emerged from a detention centre on the outskirts of Seoul early today.
"There has been insufferable pain during the past two years but I have finally met a new world and I am grateful," she was quoted as saying by Yonhap news agency.
Several former presidents have been embroiled in corruption scandals in South Korea, where politics and big business have long been closely tied.
Former leaders Chun Doo-Hwan and Roh Tae-Woo served jail terms in the 1990s for charges including bribery and treason, and ex-president Roh Moo-Hyun -- the mentor of President Moon Jae-In -- killed himself in 2009 after being questioned over graft.