Teacher Gillian Gibbons is to be released from prison in Sudan after she was jailed for allowing children in her class to name a teddy bear Muhammad.
Mrs Gibbons, 54, from Liverpool, was jailed for 15 days by a court in Sudan.
Sudan's President Omar al-Bashir pardoned her after a meeting with two British Muslim peers, Lord Ahmed and Baroness Warsi.
Prime Minister Gordon Brown said he was "delighted and relieved" at the news and that "common sense had prevailed".
The BBC's Adam Mynott said Mrs Gibbons is expected to be released later on Monday.
The jailing of Mrs Gibbons has led to an international outcry and has embarrassed the government.
"The president has told us he has already signed the papers for her pardon," Lord Ahmed told the AP news agency.
Efforts applauded
Mr Brown said Mrs Gibbons would be released into the care of the British embassy in Khartoum.
"Through the course of Ms Gibbons' detention I was glad to see Muslim groups across the UK express strong support for her case.
Baroness Warsi and Lord Ahmed both travelled to Sudan
"I applaud the particular efforts of Lord Ahmed and Baroness Warsi in securing her freedom. I am also grateful to our officials for all their work behind the scenes."
President Omar al-Bashir has been under pressure from Sudanese hardliners to ensure Mrs Gibbons served her full sentence.
There had even been calls for a retrial and for the sentence to be increased.
Mrs Gibbons had been held in a secret location due to fears for her safety.
She was arrested after a member of staff at Unity High School complained to the Ministry of Education.
Crowds of protesters had marched in the capital Khartoum demanding a tougher sentence for her alleged crime of blasphemy. Some called for her to be executed by firing squad.
The British politicians had meetings with Sudanese government officials, including the foreign minister, over the weekend.
They had been due to return home on Monday, but announced they would stay for a third day, after indications that the weekend's "difficult" meetings had led to progress in the case.
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