Musharraf has faced legal problems ever since his return from exile in March, in a series of cases that have undermined the once sacrosanct position of the military in Pakistani society.
The cases stem from his time in office which stretched from 1999 when he took power in a coup, to 2008 when he was forced to step down.
He has already been granted bail in two other cases, one stemming from the 2007 death of Pakistani politician Benazir Bhutto and another from the detention of judges, said his defense team.
Lawyer Ahmad Raza Qasuri said the ruling by a three-judge panel of the Supreme Court Wednesday means Musharraf is free once the paperwork has been completed. He expected that to be finished by Thursday morning at the latest. Musharraf must also post two bonds with the court worth one million rupees ($10,000) apiece before he can be released, said another lawyer Ilyas Saddiqi.
A prison official at Musharraf's home, Shehzad Riaz, said he was aware of the court's decision but was awaiting orders from his superiors. A Ministry of Interior spokesman did not respond to requests for comment.
Qasuri said he does not know what Musharraf's immediate plans are but said he'll be free to leave the country if he wants.
"He's a free person. He can move around," Qasuri said. "If he wants to go to Dubai tomorrow to see his mother who is 90 he can."
Mohammed Amjad, the secretary-general for Musharraf's All Pakistan Muslim League party, told a news conference in front of Musharraf's house that Musharraf had no immediate plan to leave the country and even if he does, he'll come back to Pakistan to face all the cases against him.
"He will not escape from Pakistan," said Amjad.
Musharraf returned from exile in March intending to run in the upcoming elections. But he was immediately ordered detained over the pending cases. He was also barred by a court from running for office for the rest of his life, and his political party fared poorly in the May election.
The images of Musharraf facing justice like any other Pakistani citizen have been stunning in a country where the military has taken power in three coups and wielded enormous power even under civilian governments.
For security reasons he has been held at his lavish estate on the suburbs of Islamabad instead of a jail.
Pakistani security forces have been protecting the estate following threats he received from the Taliban upon his return. Musharraf is reviled by the militants because he launched a series of attacks against their bases in the tribal areas near Afghanistan and for ordering a raid against a hard-line mosque in Islamabad in 2007.
Police are also investigating his role in the operation against the mosque that killed nearly 100 people.
Associated Press writers Rebecca Santana and Munir Ahmed contributed to this report.