Le Cong Dinh was freed on Wednesday for his "good abidance by prison rules," the online newspaper VnExpress reported.
He had handled high-profile human rights cases and once represented Vietnamese fish farmers fighting a trade complaint brought by U.S. catfish growers. He also called for political pluralism within Vietnam and spoke critically of neighboring China's claims to disputed islands in the South China Sea.
He was arrested in 2009 and sentenced to five years in prison for conspiring to overthrow the government. He served three and a half years, and his sentence was cut by six months twice previously.
Dinh, 44, studied law at Tulane University in Louisiana on a Fulbright scholarship and later was vice chairman of the Ho Chi Minh City Bar Association.
His release comes as Vietnam's crackdown on dissent has intensified, with 35 activists given lengthy jail terms for subversion over the past month.
"We welcome the decision by Vietnamese authorities to grant humanitarian release to lawyer Le Cong Dinh," U.S. Embassy spokesman Christopher Hodges said. "Human rights continue to be a fundamental part of our bilateral engagement with Vietnam, including advocating for the release of all political prisoners.
Western governments have criticized Vietnam for jailing people for peacefully expressing their views. Hanoi maintains that only lawbreakers are locked behind bars.
An annual dialogue on human rights between the U.S. and Vietnam was not held in 2012, underscoring how Vietnam's worsening treatment of dissidents over the last two years has complicated efforts to strengthen ties with its former wartime adversary. The crackdown has followed a downturn in Vietnam's once-robust economy.
Last week, Vietnam released Nguyen Quoc Quan, an American citizen who was arrested at Ho Chi Minh City's airport in April after arriving on a flight from the United States. Quan is a member of Viet Tan, a nonviolent pro-democracy group that Vietnam has labeled a terrorist outfit.