Despite claims the radical Muslim cleric still poses a risk to national security, Mr Justice Mitting ruled today at a hearing of the Special Immigration Appeals Commission that he can be freed.
He is expected to be released next week.
Qatada, 51, once described as 'Osama bin Laden's right-hand man in Europe', is free to continue fighting his deportation to Jordan - where he's wanted on suspicion of a Millennium bomb plot.
Speaking after today's ruling, a Home Office spokesman said the Government 'disagreed with the court's decision'.
He said: 'Qatada should remain in detention, our view has not changed.
This is a dangerous man who we believe poses a real threat to our security and who has not changed in his views or attitude to the UK.'
Preacher of hate Abu Qatada (left) can be released on bail after more than six years in prison,
He went on: 'We have argued for the strictest possible bail conditions to be imposed on Qatada, because this Government will take all necessary measures to protect national security.
'This is not the end of the road and we are continuing to consider our legal options in response to the European Court's ruling.'
The bail conditions will be similar to those set in 2008, with Qatada confined to his home for all but two one-hour periods each day. He will also be allowed to take one of his children to school.
Mr Justice Mitting said it would take 'between a few days and about a week' for MI5 to check the proposed bail address, which was not revealed by the court, before Qatada can be released.
The judge also ruled that the Home Secretary has three months to show progress is being made in negotiations with Jordan or restrictions on Qatada's liberty may not be acceptable any longer.
The radical, who has cost the UK taxpayer more than £1million in benefits, prison and legal fees, is being held at Long Lartin high security prison in Worcestershire after breaching previous bail terms.
Qatada will be released despite the Home Secretary stating that he would be kept behind bars while she considered all legal options to send him back to Jordan.
Theresa May wanted him kept in jail while British diplomats continue to seek assurances from the Jordanian authorities that evidence gained through torture would not be used against him.
The issue was the key reason why Qatada won an appeal to the European Court of Human Rights last month.
Jordanian authorities released this picture of Qatada (left) in 2008 under his name of Omar abu Omar. Right, the Daily Mail's front page from January 27, 2005
ABU QATADA: THE 'PREACHER OF HATE' WE CANNOT DEPORT
The judges in that case ruled that sending Qatada back to face terror charges without such assurances would deny him his right to a fair trial and be a 'flagrant denial of justice'.
The ruling was the first time that the Strasbourg-based court has found an extradition would be in violation of Article 6 of the European Convention on Human Rights, the right to a fair trial, which is enshrined in UK law under the Human Rights Act.
Judge Mitting said: 'The time will arrive quite soon when continuing detention or deprivation of liberty could not be justified.'
He said Qatada should be 'bailed on highly prescriptive terms for three months'.
'If by the end of that, the Secretary of State is not able to put before me evidence of demonstrable progress in negotiating sufficient assurances with the government of Jordan ... it's very likely that I would consider that a continued deprivation of liberty is no longer justified,' he added.
'I will order in principle that the appellant is admitted to bail on essentially the same terms as those imposed on him in May 2008.'
The judge said he agreed with the Home Secretary that an 'unusually long period of detention' was justified.
He also found that 'as of today, it is not apparent that the Home Secretary will not be able to effect deportation within a reasonable period'.
But he said the chances of this were 'slimmer than they were' before the ruling by human rights judges last month.
He added he 'cannot predict how long they (negotiations with Jordan) might take nor what their outcome might be'.
He went on: 'The risks to national security and of absconding are not significantly changed from May 2008.'
Earlier, Ed Fitzgerald QC, representing Qatada, told the immigration judge in central London that Qatada should be released, regardless of the risk he poses to national security.
'The detention has now gone on for too long to be reasonable or lawful and there is no prospect of the detention ending in any reasonable period,' he said.
'However grave the risk of absconding, however grave the risk of further offending, there comes a point when it's just too long.
'There comes a time when it's just too long, however grave the risks.'
He has been held for six-and-a-half years while fighting deportation 'against a background of almost nine years'
detention without charges on the grounds of national security', Mr Fitzgerald said, adding that this was equivalent to a 17-year jail sentence.
Mr Justice Mitting, said: 'Six and a half years of detention requires the eligibility for bail to be considered urgently.
'I accept that it's possible that negotiations with the Jordanian government may produce a rapid solution but past experience leads me to believe that is likely to be an unrealistic expectation.'
Qatada is believed to have spent longer in custody 'than any other detainee in modern immigration history', according to legal arguments lodged with Commission by his legal team.
'The period falls into a category of time that is so grave - and indeed unprecedented in the modern era - as to bear no acceptable continuing justification,' the submission went on.
'It has now become undeniably 'apparent that the Secretary of State will not be able to effect deportation within that reasonable period'.'
An appeal to the Grand Chamber of the Strasbourg-based European Court of Human Rights (ECHR) would take between 18 months and two years.
It added that seeking further assurances from Jordan 'will do no more than initiate new domestic proceedings in this country in relation to the convictions based on unfair trials in Jordan of which the Home Office has been on notice for more than a decade'.
But Tim Eicke QC, for the Home Secretary, said Qatada 'should remain detained'. Failing that, the Home Secretary 'seeks the strictest possible conditions', he added.
Qatada was 'someone who poses an unusually significant risk to the UK' and 'the mere passage of time certainly hasn't rendered it (his continued detention) unlawful', Mr Eicke said.
He added that Mrs May did not accept that Qatada's detention was unlawful, that the length of detention 'has to be weighed against the risks' and 'he poses a particularly serious risk to the UK'.
'The Secretary of State has also taken all steps to diligently try to achieve removal and deportation as soon as possible,' Mr Eicke said.
He added that there was 'no indication here from the appellant that he has changed his views or his attitude to the UK and the threat he poses to it'.
Qatada 'should remain detained', he said, but if bailed, the Home Secretary 'seeks the strictest possible conditions'.
Qatada had also shown a 'willingness to ignore the rules',
he said, even while behind bars as a category A prisoner.
'The risk he posed in May 2007 and 2008 is the risk he poses today,' Mr Eicke said.
He added that the risk Qatada may try to abscond 'might well have increased' now he knows British diplomats are seeking assurances from Jordan to overcome the one obstacle which stops him from being deported.
Qatada's case is the first time the Strasbourg-based court has found that an extradition would be in violation of Article 6 of the European Convention on Human Rights, the right to a fair trial, which is enshrined in UK law under the Human Rights Act.
The Home Secretary has three months to lodge an appeal with the court's Grand Chamber.
The Henry Jackson Society think-tank said the ruling 'undermines national security' while former home secretary David Blunkett warned Qatada was 'extraordinarily dangerous and we don't want him on our streets'.
Qatada, also known as Omar Othman, featured in hate sermons found on videos in the flat of one of the September 11 bombers.
Since 2001, when fears of the domestic terror threat rose in the aftermath of the attacks, he has challenged, and ultimately thwarted, every attempt by the Government to detain and deport him.
Law Lords ruled almost three years ago that he could be sent back to Jordan and Lord Phillips, now president of the Supreme Court, said torture in another country does not require the UK 'to retain in this country, to the detriment of national security, a terrorist suspect'.
But the human rights court went against that judgment, agreeing with the earlier 2008 decision of the Court of Appeal which said there were reasonable grounds for believing he would be denied a fair trial in Jordan.