The two-judge bench commuted the sentence citing no proof against the murder charged hence he was sentenced for kidnapping only. "He will be out in a few days", Naveed said.
The court also acquitted and released three other men who were given life sentences over the killing.
Sheikh was expected to be released from prison after serving there since 2002.
Pearl was beheaded and a video capturing the act was sent to the USA consulate.
Mr Naveed told Reuters on Thursday that the murder charges had not been proven, so his client's sentence had been reduced to seven years for the kidnapping.
This March 1, 2003, photo obtained by the Associated Press shows Khalid Sheikh Mohammed, the alleged September 11 mastermind, shortly after his capture during a raid in Pakistan.
"We will go through the court order once it is issued, we will probably file an appeal", Faiz Shah, the provincial prosecutor general, told Reuters by telephone. Saeed has already spent 18 years in prison.
Mr Pearl disappeared in Karachi while researching links between Pakistani militants and shoe bomber Richard Reid, who was arrested in December on a flight from Paris to Miami. Video emerged a few weeks later of his murder.
His widow, Mariane Pearl, was not immediately reachable for comment.
Saeed, a former student at the London School of Economics, and the others were convicted in 2002.
He was arrested in India in the 1990s for his involvement in the kidnapping of western tourists in 1994 in support of Muslim separatists battling Indian security forces in the disputed Kashmir region.
He was one of three men released from an Indian prison after militants hijacked an Indian airliner in late 1999 and flew it to Afghanistan, where the then-ruling Taliban regime helped negotiate an exchange with the Indian government officials.
However, in January of 2011, a report published by the "Pearl Project" of Georgetown University, following an investigation of Pearl's killing, suggested the wrong people had been convicted.
Pearl's murder is believed to have been carried out by Khalid Sheikh Mohammed, a militant who was also involved in the September 11 attacks, and is now at the United States military's Guantanamo Bay detention camp. Pervez Musharraf in his book "In the Line of Fire" has alleged that Sheikh was sent to the Balkans by the British intelligence agency MI6.