The top court upheld an earlier High Court decision in the capital, Dhaka, on Wednesday, granting bail to Zia, who sentenced to five years for fraud.
Lawyers from both sides said the ruling does not necessarily mean Zia, chairperson of the Bangladesh Nationalist Party (BNP), will be released from jail because she has been arrested in connection with three other cases.
The government had appealed a March verdict by the High Court granting her bail for four months.
Zia, who served two terms as prime minister from 1991-96 and again from 2001-2006, was sentenced on February 8 over her alleged embezzlement of funds meant for the Zia Orphanage Trust.
The court also convicted Tarique Rahman – Zia’s elder son – and four others of corruption, sentencing each to 10 years in prison.
The six were accused of embezzling over Tk 21 million ($252,000) of a donation to the trust.
The BNP has said its participation in Bangladesh’s upcoming elections, scheduled to be held in December, is reliant on the provision of a free and fair vote and Zia’s release.
Lord Alex Carlile QC, a member of the Zia’s legal team told , he had “not seen any evidence whatsoever that could justify prosecuting the former prime minister, let alone convicting her “following a review of all the “relevant” documents.