"The decision to release the prisoner was made out of humanitarian reasons since he is suffering from a very serious illness," the presidency said in a statement.
Mohammed Kamal al-Taj, who has served two thirds of his 14-year imprisonment, has been transferred to a medical facility in the West Bank city of Ramallah, the Palestinian Ma'an news agency reported.
Israel Prison Service, along with Justice Minister Tzipi Livni and security authorities, reportedly recommended the release of al- Haj to avoid any riots in the West Bank.
In early April, Maisara Abu Hamdia, another Palestinian inmate, died of cancer at an Israeli hospital. His death triggered accusations toward Israel as well as protests throughout the West Bank.
Palestinian President Mahmoud Abbas accused Israel of neglecting the wellbeing of Palestinian prisoners and called for an international committee to look into the cause of Abu Hamdia's death.
In February, Arafat Jaradat, also a Palestinian detainee, died at the Megiddo Prison in northern Israel earlier of a heart attack.
However, the Palestinians claimed that Jaradat had been tortured. His death led to protests and prisoners' hunger strikes.