Sergeant Danny Nightingale, 37, was originally given 18 months' military detention for illegally possessing a pistol and ammunition.
But three appeal judges on Thursday concluded the sentence was too harsh and cut the term to 12 months, saying it should be suspended, as well as ordering Mr Nightingale's release.
Despite describing the prospect of being home with his family as an "early Christmas present", the father-of-two and his wife, Sally, said he will continue to appeal against the conviction.
Mrs Nightingale, from Cheshire, said: "I am really happy with the result, but we do need to go on and we need to clear Danny's name.
"Danny has been used as a scapegoat and they chose the wrong person to do that to. There's just so many mitigating circumstances.
"He was the wrong person to choose to make an example of."
Mr Nightingale was handed his sentence after admitting illegally possessing a Glock 9mm pistol and more than 300 rounds of ammunition.
He claimed he could not remember having the pistol – given as a gift after a served in Iraq – due to a brain injury which had affected his memory.