The order to release Ralf Wohlleben, sentenced to 10 years in prison for procuring the weapon used to commit nine murders, comes a week after Beate Zschaepe, one of the gang's ringleaders, was jailed for life.
They were both part of the National Socialist Underground (NSU), whose members killed eight Turks, a Greek man and a German policewoman from 2000 to 2007.
Wohlleben, born in the east German city of Jena in 1975, had a long history of far-right political activity before he fell in with the cell, for whom prosecutors said he was a kind of "guiding spirit" and "mastermind."
Prosecutors alleged he was instrumental in supplying the National Socialist Underground group with a handgun and silencer and knew they planned to use it for the killings
Judges ruled that since Wohlleben had already spent six years and eight months in custody while on trial for crimes including helping shelter the murderers, Uwe Boehnhardt and Uwe Mundlos, he could be given conditional release.
"After the court gave Ralf W. A 10 year sentence last week, he has at most three years and four months still to serve should his conviction be confirmed," Florian Gliwitzky, spokesman for the Munich higher regional court, said in a statement on Wednesday.
"The remaining sentence is thus no longer enough in this concrete case to make him an exceptional flight risk," it added.
The arrest warrant was lifted on Tuesday, the court said. Wohlleben walked out of the Stadelheim prison in Munich on Wednesday morning, a spokeswoman for the prison said.
The court does not know where Wohlleben is staying after his release.
He had already been in pre-trial detention for six years and eight months, meaning he would only have three years and four months left to serve of his prison sentence.
In freeing Wohlleben, the Munich court was acting on the advice of the federal prosecutor who felt that detention is no longer necessary.
The murders shook a country that believed it had learned the lessons of its past. A report later said police had "massively underestimated" the risk of far-right violence and that missteps had allowed the cell to go undetected.
Boehnhart and Mundlos killed themselves in 2011 when police discovered the gang by chance.
Five of the 10 murders took place in Bavaria, the most violent attacks of their kind in Germany since the far-left Red Army Faction's two-decade killing spree that ended in 1991 and left at least 34 dead.
More about: Germany
