James Ricketson, 69, was sentenced in late August following his arrest in June last year after he flew a drone over a rally held by the opposition Cambodia National Rescue Party (CNRP), which was effectively banned months later.
“Convict James Stanforth Ricketson is pardoned,” said the royal decree signed by acting head of state Say Chhum.
It added that the request for the pardon came from strongman premier Hun Sen.
Ricketson’s lawyer Kong Sam Onn confirmed Ricketson has been released and is now with his family.
His son Jesse said the family was "relieved and excited" to have Ricketson back.
“It has been a really tough 16 months and I’m just kind of in shock now,” Jesse said, expressing gratitude to Cambodian King Norodom Sihamoni for “bringing this nightmare to an end”.
The six-day trial – which featured a surprise appearance by Hollywood director Peter Weir serving as a character witness for his friend – ended with the court convicting Ricketson for “espionage and collecting harmful information that could affect national defence”.
The prosecution had accused Ricketson of working as a filmmaker in Cambodia for years as a front for espionage but the verdict did not mention the country that he was allegedly spying for.
Human Rights Watch called the trial proceedings a “ludicrous charade”.
Ricketson’s release comes after a series of activists and opposition lawmakers were freed in the weeks following July’s national election, which critics have said was neither free nor fair.
The CNRP was dissolved in the lead-up to the controversial poll, stamping out the only real competition faced by Hun Sen's Cambodian People's Party and paving the way for all 125 parliament seats to be filled by his lawmakers.
Following the vote Hun Sen – who has been in power for more than three decades – returned to a pattern of easing up on dissent.
Ricketson's pardon comes just a few days before Hun Sen is scheduled to travel to New York to attend the United Nations General Assembly.