Puigdemont is being freed because he has been deemed much less of a flight risk, now that rebellion has been ruled out, the court said.
Spain has accused the Catalan separatist of rebellion and corruption after he organised an unsanctioned independence referendum.
The former Catalan leader was arrested last month on a Spanish-issued arrest warrant as he entered Germany. The High Administrative Court of Schleswig-Holstein granted bail to Puildemont for $ 75,000 euros, considering that the risk of escape prevails but in a lesser degree, after ruling out the crime of rebellion. It wasn't immediately clear when Puigdemont would be released.
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Some 8.4 million people do not know how they will get their next meal, according to United Nations estimates. The conflict has fanned the world's worst recent cholera outbreak and put many on the brink of starvation.
"Puigdemont's Barcelona-based lawyer Jaime Alonso-Cuevillas tweeted: "[Puigdemont] always said that he had full confidence in the German judiciary".
Puigdemont can leave prison as soon as he posts the bail, a court spokeswoman said on Thursday.
The former Catalan leader's German defense team welcomed the court's decision to dismiss the Spanish government's "outrageous" rebellion charge, adding that the case had a "trend-setting significance for the European understanding of democracy".
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The conviction was handed down by Judge Sergio Moro, who is presiding over cases involving the mammoth "Car Wash" investigation. The judgement represents the latest setback in the stunning fall-from-grace of one of Brazil's most loved politicians.
Judge Carmen Lamela said in an indictment that Mossos d'Esquadra chief Josep Lluis Trapero was part of an organized plan to seek Catalonia's secession, which courts have forbidden because the constitution says Spain is "indivisible".
Sanchez said in a letter from a Madrid jail published Thursday that he was ready to try again to be elected.
Spain's Supreme Court determined 25 Catalan leaders should be tried for rebellion, embezzlement or disobeying the state.
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The ex-police chief - who was credited for the force's swift response in the 2017 Barcelona terror attacks - resigned previous year in the aftermath of the referendum. Two other members of the regional police and an official with the regional interior department were also indicted.