The military has squeezed the press since taking power in a February coup, arresting dozens of journalists critical of its crackdown on dissent, which has killed more than 1,200 people according to a local monitoring group.
Danny Fenster had been working at local outlet Frontier Myanmar for around a year and was arrested as he headed home to see his family in May.
He was jailed for 11 years last week for incitement, unlawful association and breaching visa rules and had been due to appear in court on Tuesday to face sedition and terror charges -- which could have seen him jailed for life.
But on Monday junta spokesman Zaw Min Tun told AFP he had been freed and would be deported from the country.
The 37-year-old's release was secured following "face-to-face negotiations" between former top US diplomat Bill Richardson and junta chief Min Aung Hlaing, Richardson's organisation said in a statement.
Fenster would travel home to the US "through Qatar, over the next day and a half," the Richardson Center said, adding it was looking forward to re-uniting Danny with his parents and brother.
In a statement, the family expressed their relief at Fenster's release.
"We are overjoyed that Danny has been released and is on his way home -- we cannot wait to hold him in our arms," the statement said, thanking Richardson for his help.
A photo posted by the Richardson Center showed Fenster, looking thin and gaunt, standing in shorts and flips flops in front of a small plane alongside the former New Mexico Governor on the tarmac in Myanmar's capital Naypyidaw.
"It's wonderful news for all of his friends and family," his colleague at Frontier Myanmar Andrew Nachemson told AFP.
"But of course he never should have spent six months in jail... and all the local journalists who remain imprisoned should also be released immediately."
Richardson visited Myanmar earlier this month on a "private humanitarian mission".
He said at the time that the US State Department had asked him not to raise Fenster's case during his visit.
Fenster -- who spent 176 days in detention -- is believed to have contracted Covid-19 during his detention, family members said during a conference call with American journalists in August.
"This is fantastic news for Danny and his family," International Crisis Group's Myanmar senior advisor Richard Horsey told AFP.
"He had done nothing wrong and should never have been put through this hell."
"It is also important at this moment to remember the many Myanmar journalists who have been unjustly detained, who must also be released."
Myanmar has been in turmoil since the military seized power in a February coup and ousted Aung San Suu Kyi's elected civilian government.
More than 1,200 people have been killed by security forces in a crackdown on dissent, according to a local monitoring group.
The press has also been squeezed as the junta tries to tighten control over the flow of information, throttling internet access and revoking the licences of local media outlets.
More than 100 journalists have been arrested since the putsch, according to Reporting Asean, a monitoring group.
It says at least 30 are still in detention.
The coup snuffed out Myanmar's short-lived experiment with democracy, with civilian leader Aung San Suu Kyi now facing a raft of charges in a junta court that could see her jailed for decades.