By Mehmet Emin Caliskan and Andrea Shalal

ISTANBUL/BERLIN (Reuters) - Turkey has released German journalist Mesale Tolu after nearly eight months in prison on the condition that she does not leave the country, German government officials said on Monday.

Ankara has charged Tolu with being a member of a terrorist organization and publishing terrorist propaganda following a failed military coup in July 2016.

Her husband, Suat Corlu, a journalist who had been detained earlier, was released last month. Both continue to face charges in Turkey.

Chancellor Angela Merkel welcomed the news with reservations, given curbs on Tolu's ability to travel.

"Regarding Ms Tolu, it is good news given that she will be freed, but not completely so, because she can't leave the country and the trial continues," Merkel told reporters.

Tolu's father, Ali Riza Tolu, was jubilant outside the courthouse, but said Ankara had "stolen" nearly a year of his daughter's life and there was no proof of any wrongdoing.

"My daughter is free," he said. "We are now a happy family."

The decision to release Tolu came two weeks after German federal prosecutors dropped an investigation against a dozen Muslim clerics sent from Turkey who had been suspected of spying in Germany on behalf of the Turkish government.

German Foreign Minister Sigmar Gabriel told broadcaster ARD that Turkey seemed to be gradually making some limited progress in terms of the rule of law but the German government still had many concerns such as about human rights and press freedom.

He said Berlin and Ankara, between whom ties have been strained of late, were trying to find ways to deal with their disputes appropriately and that was proving tough but: "Small steps are better than none".

Merkel's spokesman Steffen Seibert said Berlin would continue to press for the release of German-Turkish journalist Deniz Yucel.

Germany has urged Ankara to release Yucel, Tolu and other journalists detained after the abortive coup in July 2016, saying their detentions are unfounded and political.

Including Tolu, Ankara is preventing a total of 28 German citizens from leaving the country, she said.

Tolu was first detained on April 30.

German Green party co-leader Cem Ozdemir, who is of Turkish descent, welcomed the news, but said it did little to change the "miserable state of the rule of law in Turkey".

"I demand that the Turkish government release all political prisoners and immediately allow German citizens like Mesale Tolu to leave the country," Ozdemir said in a statement.

Heike Haensel, a member of Germany's far-left Left party who attended Tolu's hearing in Istanbul, said on Twitter that Tolu was required to check in with Turkish authorities every Monday.

"I would say it is a second-class release," Haensel told Reuters TV.

Germany's mainstream parties have been outspoken critics of Turkey's security crackdown since the abortive military coup. Tens of thousands of Turks have been jailed since then, including around a dozen who hold German citizenship. Germany is home to some 3 million people of Turkish heritage.

Turkey has criticized Berlin for not handing over asylum seekers it accuses of involvement in the would-be coup.

Ankara has blamed U.S.-based cleric Fetullah Gulen for masterminding the failed coup. Gulen denies any involvement.

(Additional reporting by Thomas Escritt and Michelle Martin; Editing by Joseph Nasr and Alison Williams)