Bangladesh will suspend the jail sentence of its ailing former prime minister and opposition leader Khaleda Zia and release her for a period of six months, the nation's law minister has said.

"We have decided to release her on humanitarian grounds as per the instructions of the prime minister," Law Minister Anisul Huq said at a media briefing on Tuesday.

"She can receive treatment staying at her home, but she cannot go abroad."

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He said the Ministry of Home Affairs will issue a notification for her release. It was not immediately clear exactly when she would be freed.

Khaleda, 74, who has twice been prime minister, has been in jail since she was convicted in a corruption case in February 2018. She was accused of misusing her power by embezzling some $250,000 in donations meant for an orphanage trust.

Khaleda's party says she is seriously ill with ailments including respiratory problems and arthritis. In April last year, she was moved to a prison cell at Bangabandhu Sheikh Mujib Medical University in the capital, Dhaka.

The government decided to release Khaleda in response to appeals from her family, Huq said.

Khaleda's brother, Shamim Iskander, thanked the government for its decision of releasing her, saying: "We're very happy with the decision."

Khaleda, who shares a long-standing rivalry with incumbent Prime Minister Sheikh Hasina, was later convicted in a separate corruption case following her initial conviction in early 2018.

Her Bangladesh Nationalist Party says the cases were fabricated and aimed at keeping her away from politics, allegations denied by Hasina's government.

She has been unable to secure bail despite repeated appeals. In February, the High Court again rejected her bail plea.

Khaleda and Hasina are both part of political dynasties. While Khaleda is the widow of Ziaur Rahman, a general-turned-president who was assassinated in 1981, Hasina is the daughter of Sheikh Mujibur Rahman, the country’s first president and independence leader, who was assassinated in 1975.

Bangladesh gained independence after it broke from Pakistan following a nine-month war in 1971.