The move comes after Afghan judicial authorities met to consider the case and proposed a pardon for her on Thursday. CNN is identifying her only as Gulnaz to protect her identity.
Gulnaz had been sentenced to prison for 12 years after she reported that her cousin's husband had raped her two years ago.
Her plight gained international attention when the European Union blocked the broadcast of a documentary made about her ordeal, saying that it would further jeopardize her safety.
Afghan Justice Minister Habibullah Ghaleb presented a report on the case to a judiciary committee at a meeting chaired by Karzai. The report and the judiciary committee both proposed a pardon.
Karzai then ordered authorities to make a decree announcing Gulnaz's release.
The woman is raising her daughter in jail and had previously agreed to marry her attacker in order to be released and legitimize her daughter.
Karzai said he's asked the justice minister to meet with the woman and her rapist to find out whether she wants to marry him and legitimize her daughter. The president said he was concerned that if the woman went back to her village after her release, she may face reprisals from the conservative society.
However, a Karzai spokesman told CNN such a marriage is not a condition of the release.
Gulnaz does not want to marry her attacker, U.S. attorney Kimberly Motley said from Kabul. Instead, the woman wants to marry an "educated man."
Motley told CNN's Brooke Baldwin she will take the woman to a safe, undisclosed location once she has been freed.
The woman did not immediately report the attack over fear of reprisals, and she was sentenced to prison for adultery because her attacker was married at the time.
Her sentence was later reduced to three years.
Last week, a spokesman for the attorney general said while the original sentence for adultery was reduced, she had failed to report her rape quickly enough and would have to serve some time in prison for that offense.
Under Afghan law, Motley said, the definition of rape includes women who have been dishonored. "I believe she was raped according to Western standards," the attorney said.
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