Ousainou Darboe has been freed along with 18 other detainees, just days after president Yahya Jammeh lost Thursday's presidential election to property developer Adama Barrow.
The men were arrested in April at a demonstration over the alleged death in custody of an activist.
They were each later sentenced to a three-year prison term.
Mr Darboe, leader of the United Democratic Party (UDP), had been due to stand in the presidential election.
However, the Gambian opposition was left without leadership after the April mass-arrest.
A coalition of political parties, including the UDP, then picked Adama Barrow as their single candidate to run against President Jammeh.
Following his shock win on Friday, Mr Barrow heralded a new hope for The Gambia, which is the smallest country on mainland Africa, with a population of fewer than two million.
With the move to free the high-profile prisoners, change in the country seems to be happening at a fast speed.
Amnesty International had been vocal in its criticism of President Jammeh over his human rights record.
Sabrina Mahtani, Amnesty's West Africa Researcher, hailed the release of the 19 political prisoners and called for the charges against them to be dropped altogether.
"The release of the [18 other peaceful protestors] on bail is a big moment for them and their families," Ms Mahtani said.
"We hope that this positive step indicates that they will be fully acquitted in due course."
The prisoners have been released pending an appeal of their jail sentence for "unlawful assembly".
It is unlikely that they would ever be returned to prison as Mr Barrow has vowed to free all political prisoners.
A Gambian opposition leader, who had been thrown in jail for taking part in a protest, has been released on bail.