Mr Liu, 61, was jailed for 11 years in 2009 for "inciting subversion of state power" after he helped write a petition known as "Charter 08" calling for sweeping political reforms.
In December 2010, Mr Liu was awarded the Nobel Peace Prize for his activism promoting human rights in China, causing Beijing to freeze diplomatic ties with Norway. China and Norway normalised ties in December last year.
Mr Liu is currently being treated in a hospital in north China's Shenyang city for late-stage liver cancer, having been granted medical parole, his lawyer told Reuters on Monday.
A video of Liu's wife Liu Xia, who has been under effective house arrest since her husband won the Nobel Peace Prize, crying and talking about her husband's condition was shared online late on Monday.
"(They) cannot perform surgery, cannot perform radiotherapy, cannot perform chemotherapy," Liu Xia said in the video. She did not elaborate. It is unclear when the video was filmed.
A source close to the family confirmed the authenticity of the video and said Mr Liu is being treated using targeted therapy.
"They (the authorities) say his cancer has already spread too far for other treatments, but because we cannot meet the doctors treating him, we have no way to tell if this is true," he said.
Mr Liu and his wife wanted to return to Beijing for treatment but the authorities rejected their request, the source said.
"Even with the news today that Dr Liu has been released from prison for medical treatment, serious questions remain," US Senator Marco Rubio, co-chair of the Congressional-Executive Commission on China, said in a statement on Monday.
"I urge President Trump to seek Nobel Laureate Liu Xiaobo's immediate humanitarian transfer to the United States," he said.
China's foreign ministry said on Monday it did not know about the circumstances of the case. China has in the past acknowledged problems of mistreatment in the criminal justice system and has repeatedly vowed to crack down to address them.
Wang Qiaoling, the activist wife of rights lawyers Li Heping, likened Mr Liu's case to that of her husband and the other dozens of lawyers who say they suffer illnesses due to mistreatment in Beijing's most recent clampdown on dissent.
"Just as those captured in the 709 (crackdown) 'met with high blood pressure', we suspect Mr Liu Xiaobo 'met with liver cancer', and call for an independent third party medical organization to be involved," she said on Twitter.
(Reporting by Christian Shepherd in Beijing and Venus Wu in Hong Kong; Editing by Michael Perry)