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Selebi, a former Interpol head, needs dialysis for kidney failure, said Correctional Services Minister Sibusiso Ndebele.
He was jailed in 2010 after being found guilty of taking bribes from a drug dealer.
Selebi's successor was also suspended last year on corruption allegations.
Both Selebi are that successor - Gen Bheki Cele - are senior members of the governing African National Congress.
Selebi, 62, started his prison term in December 2011, after his final appeal was rejected.
He collapsed at home while watching on TV as the Supreme Court delivered its verdict, and was taken to hospital.
A medical parole board decided in June this year that Selebi should be released, reports the South African Press Association.
"The department has limited capacity to provide for palliative care," Mr Ndebele said.
'Stranger to the truth'
The BBC's Karen Allen in Johannesburg says that ministers have been at pains to stress that Selebi is not getting preferential treatment and his terminal illness has been well documented.
But she notes that his release on medical parole follows another high-profile case.
In 2009 Schabir Shaik - President Jacob Zuma's former financial advisor who was convicted of fraud and corruption - was also released on medical grounds due to a heart condition.
He served just over two years of his 15-year sentence.
Selebi was convicted of receiving 1.2m rand ($156,000; £103,000) from convicted drug dealer Glenn Agliotti to turn a blind eye to his business.
During the trial the court heard how Selebi had spent thousands of dollars on shopping sprees with the money he was given by Agliotti.
Lawyers for Selebi, a close ally of former President Thabo Mbeki, argued that he was the victim of a political witch-hunt after Mr Zuma, Mr Mbeki's bitter rival, became president in 2009.
But Judge Joffe Meyer dismissed their argument and described Selebi as "an embarrassment" and a "stranger to the truth" in the witness box.