The ruling means Mr Puigdemont, who fled Spain five months ago for Belgium after Spanish Prime Minister Mariano Rajoy dismissed his regional administration, can not be tried for rebellion in Spain once extradited on the lesser charge, a German court spokeswoman said.
"That is not the case here", the court said in a statement.
German police arrested Puigdemont in March while he was crossing into the country from Denmark on his way from Finland to Belgium.
Catalan parliament president Roger Torrent described Mr Puigdemont's conditional release as "very good news" on Twitter.
The separatists' maneuvers come after a string of setbacks for their ambitions since October, with Spanish courts blocking moves toward independence and bringing charges against the movement's leaders.
Former Catalan police Chief Josep Lluis Trapero was indicted today by Judge Carmen Lamela of the Spanish national court for his involvement in the independence movement.
He then came under pressure when central authorities urged the regional police to stop the October 1 referendum banned by Spanish courts.