50-year-old Balendra Jeyakumari's release came days ahead of Prime Minister Narendra Modi's visit to the country.
Under bail orders, she has been prohibited from leaving the country by the Colombo Additional Magistrate which also asked her to report to police station closest to her residence every month.
Sri Lankan police had arrested Jeyakumari, a widow and a mother of four children from the former northern war zone of Kilinochchi on the charge of harbouring a man who shot at a police officer to evade arrest.
Jeyakumari and her daughter were at the forefront of protests over the fate of disappeared people when dignitaries visited Kilinochchi, including British Prime Minister David Cameron in November, 2013.
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Her two sons were killed in the war and the third went missing after she handed him over to the military in May 2009.
Commenting on her release, Sri Lanka Campaign -- a civil society pressure group based in London -- said, "Jeyakumari's detention made it hard to accept the idea that there had been any meaningful change in Sri Lanka. Her release gives us greater cause for hope."
The group demanded the repealing of the Prevention of Terrorism Act (PTA) under which she was held without a charge for nearly an year.
The court also released 6 other activists along with Jeyakumari.