In a shock remark after his annual marathon news conference on Thursday, Putin had said that Russia's most famous prisoner had asked for clemency on humanitarian grounds as his mother was ill.
The Kremlin followed with a swift announcement on Friday that Putin had already signed the pardon decree.
"Guided by humanitarian principles, I decree that Mikhail Borisovich Khodorkovsky... should be pardoned and freed from any further punishment in the form of imprisonment. This decree comes into force from the day of its signing," said the decree signed by Putin and published by the Kremlin.
Ir remained unclear exactly when Khodorkovsky, 50, would be freed from his prison colony in the town of Segezha in the Karelia region of northwestern Russia.
The circumstances of the pardon also remained murky.
The former chief of Yukos oil company, once Russia's richest man, had repeatedly said he would not ask Putin for a pardon because it would be tantamount to admitting guilt.
The Kommersant broadsheet, citing unnamed sources, said on Friday Khodorkovsky had made the decision to seek a pardon after a recent meeting with representatives of Russia's security services, who had raised the menace of a third trial against him.
Members of the security services met with Khodorkovsky over the last several days, told him the health of his cancer-stricken mother Marina, 79, was worsening and warned him about a possible third criminal case against him.
"This conversation, which was conducted without lawyers, forced Mikhail Khodorkovsky to turn to the president," said the newspaper.
Economists and political analysts put the announcement down to Kremlin's bid to improve its dismal rights record and international image ahead of the Winter Olympic Games that Russia is hosting in Sochi in February.
Khodorkovsky had been due to be released in August 2014 but Russian prosecutors earlier this month raised the threat of a third trial for the former tycoon on money-laundering charges.
Putin told reporters on Thursday that he saw no prospects for the third case.
'Putin's trump card'
Economists and political analysts said that while Khodorkovsky's imminent release was a watershed moment it would not dramatically change Russia's battered investment climate or international image.
"It is a very important signal," said prominent economist Sergei Guriev, who co-authored a critical report on Khodorkovsky's second conviction in 2010.
"In and of itself it will not change anything but it will give hope to investors," Guriev told AFP in emailed comments.
He said however Putin's promise to release Khodorkovsky was not enough to make him return to Russia.
Earlier this year, Guriev had fled to France after coming under pressure from investigators for his role in the Khodorkovsky report.
The Eurasia Group consultancy said the former tycoon's release was a "charm offensive" ahead of the Sochi Olympics amid reports that heads of major states like Barack Obama of the United States and France's Francois Hollande will not be in attendance.
Vedomosti business daily compared the announcement to a "a trump card" Putin pulled out of his sleeve at a critical moment.
"Khodorkovsky personally no longer presents a threat to the system," it said, noting that his release would not "heal the wounds inflicted on the economy and society 10 years ago."
"Investments will not return, businesses that were closed down or were never created will not be born again, those who emigrated will not come back," said Vedomosti.
Supporters have said that Khodorkovsky had been thrown into jail and found guilty in two separate trials for daring to finance opposition to the Russian strongman.
He was snatched off his corporate plane in 2003 soon after Putin warned oligarchs against meddling in politics. He has been held in detention ever since.
He and his business partner Platon Lebedev were convicted of fraud and tax evasion in 2005. Khodorkovsky was convicted of embezzlement in a second trial in 2010 and had been due for release in August.