Rachel Goldwyn, 28, from Barnes, south-west London, was jailed in September after chaining herself to a lamp-post and singing in protest against the Burmese junta.
The foreign office yesterday put her quick release down to "quiet diplomacy". Last night she was celebrating with her parents, who had been in the capital, Rangoon, for six weeks. Edward and Charmian Goldwyn had been campaigning to free their daughter.
Ms Goldwyn had been shocked by the sentence of the Rangoon court, which found her guilty of "undermining peace, security and stability". She had expected only to be deported and had written to her parents predicting this before her demonstration.
Earlier in September another Briton, James Mawdsley, 26, was jailed for 17 years for entering Burma illegally and distributing political literature.
Ms Goldwyn's sister, Naomi Rose, said yesterday: "This is fantastic news. I can't wait to see Rachel again." The foreign office had phoned to tell her Rachel was free "and I just cried and cried and cried. I had no idea this was going to happen."
Ms Rose said she was preparing a big party for her sister's homecoming. "These last two months have been the worst of my life, a real nightmare. I have been able to write to Rachel but she was unable to reply, and that was hell."
A foreign office spokesman said: "This is a victory for quiet diplomacy and shows what you can do by talking to people. Since Rachel was jailed we have been in constant contact with the Burmese authorities and have been able to pass her essentials such as soap and other health materials."
Stephen Jakobi, a friend of the Goldwyn family and their legal adviser, said he was grateful to the Burmese for their consideration.
"I understand that Rachel's parents are going to meet their daughter in Burma. This is the result we were hoping for," he said.
Ms Goldwyn was visited regularly in jail by British embassy officials. The embassy facilitated meetings between her parents and government members to try to secure her release.
Ms Goldwyn, a London School of Economics graduate, became interested in the Burmese democracy movement while working in a refugee camp in Thailand two years ago. She travelled to Burma without her parents' knowledge, pretending she was off on holiday to Germany and leaving a letter in a bedroom drawer in case she was arrested.
She had planned her trip with the backing of her boyfriend, Kyaw Soe Aung, an exile living in Britain after serving seven years in a Burmese jail for demonstrating against the junta. He taught her the words of the freedom song We Will Never Forget, which she was singing when she was arrested.