Fr Nguyen Van Ly is well-known for his outspoken attitude towards the government and has been released early in a move regarded as a goodwill gesture before Mr Obama makes an official visit next week.
The Catholic Archdiocese of Hue has welcomed the return of the Reverend Nguyen Van Ly from prison.
The 70-year-old is thought to have had severe health problems during his time in prison, according to the Sydney Morning Herald.
Fr Ly has spent a number of long terms in jail or under house arrest for promoting political and religious freedoms in the communist country.
He was first imprisoned in 1977 after Communism took hold in Vietnam.
This early release is part of an eight-year sentence that began in March 2007 after he was convicted of spreading propaganda.
Part way into his sentence he was released in 2010 on medical parole for a period of 16 months, after which he was sent back to prison to resume his sentence.
The government's relations have always been tense with the Catholic Church because the institution has been associated with French colonial rule and the former anti-communist South Vietnam.
President Obama will begin his visit on Sunday and arrives as Vietnam prepares to go to the polls to decide the country's next National Assembly.
Some observers have said they do not expect the election to be legitimate.
Around 69 million people in Vietnam are registered to vote yet many independent candidates not affiliated with the state were unable to get on the ballot sheet.
It is thought that Vietnam's strict policies about freedom have been a blockade to warmed relations with the USA.
The US State Department said it welcomed Father Ly's release: "We consistently have called for the release of Father Ly and all other prisoners of conscience in Vietnam."
