Sharma, who has spent almost 18 years in jail for what became notorious as the 'tandoor murder case', can be released if the Delhi government grants him remission.
"It is not a crime against society but a crime committed due to (Sharma's) strained relationship with his wife," the top court said, adding that the murder did not fall in the category of rarest of rare crimes.
A trial court in 2003 convicted Sharma of shooting his wife Naina Sahani on July 2, 1995, in a fit of rage at their home in central Delhi, on the suspicion that she was having an affair with another Congress worker.
Sharma was found guilty of chopping up the body and trying to burn it in a tandoor - or open clay oven - in a popular restaurant, with the help of the manager, who was his friend.
The crime was detected when the thick smoke from the tandoor alerted cops patrolling the area. Sharma ran, but surrendered a week later.
In 2007, the Delhi High Court upheld the conviction and death sentence, describing the crime as an "act of extreme depravity that shook the conscience of society".
Sharma had argued in court that his conviction was based entirely on circumstantial evidence. But the Delhi Police maintained in every court that the gruesome killing falls under the rarest of rare category of crimes.