"I bow my head in gratitude to the people of this nation," Yoon said in a statement released through his lawyers.
A court had cancelled his arrest warrant a day earlier on technical and legal grounds -- a decision that prosecutors probing Yoon called "unjust".
Yoon was freed after the prosecutors waived their right to appeal the court verdict, which specifically concerned technical details of his detention on criminal charges.
Yoon also faces a separate Constitutional Court ruling on whether to uphold his impeachment and formally strip him from office, with the judges' decision expected any day.
Prosecutors said that "given the Constitutional Court's ruling and related considerations, the Prosecutor General has instructed the team to actively present its arguments before the trial court instead," of appealing Yoon's release from detention.
South Korea must hold a fresh presidential election within 60 days if Yoon is removed.
The criminal case against him will continue even if he is formally stripped of office.
"Because Yoon's release is related to the procedural aspects of his detention, it will have no bearing on the Constitutional Court's deliberation on his impeachment," Yoo Jung-hoon, a lawyer and political columnist, told AFP.
"However, with social confusion and strife among Yoon's supporters and protesters intensifying due to his release, the court may feel a greater need to act swiftly," he added.
- 'Swift removal' -
Yoon's lawyers, who had filed a request to cancel his arrest last month arguing his detention was unlawful because the prosecution waited too long to indict him, hailed his release.
"The president's release signifies the restoration of the rule of law," his legal team said in a statement.
Yoon got into a convoy of vehicles and drove straight to the presidential residence, AFP reporters saw, getting out of his car outside the presidential compound to greet the hundreds of cheering supporters waiting outside.
The opposition slammed the decision, with a Democratic Party spokesperson saying Yoon was acting "like a general that has just won a battle. This is shameless behavior from someone who denies being indicted for leading an insurrection."
"The only way forward now is (Yoon's) swift removal from office," they said, referring to the looming ruling by the Constitutional Court.
Yoon, a former prosecutor, plunged democratic South Korea into turmoil in December by briefly suspending civilian rule and sending soldiers into parliament.
He has been charged with insurrection for his martial law declaration, which lawmakers voted down within hours before impeaching him.
The 64-year-old resisted arrest for two weeks, in a tense standoff between his security team and investigators at his official residence in Seoul. He was finally taken into custody on January 15.
Much of the impeachment trial has centred on whether Yoon violated the constitution by declaring martial law, which is reserved for national emergencies or times of war.
The opposition has accused him of taking the extraordinary measure without proper justification.
Yoon's lawyers have said he declared martial law to alert the country to the dangers of "legislative dictatorship" by the opposition.
