An appeals court on Monday lifted a ban on Azamn newspaper which was forced to close in August after it published an article alleging government corruption, the paper's lawyer said.
The court also reduced prison sentences handed down by a lower court to editor-in-chief Ibrahim al-Maamari and his deputy Yousef al-Haj.
They were arrested on July 28, two days after the paper published an article accusing public officials of corruption and interfering in judicial decisions.
The authorities shut down the paper indefinitely in a decision later confirmed by judicial authorities, and the journalists were tried and sentenced to three years in prison each.
They were accused of "undermining the prestige of the state and misusing the internet", according to the charge sheet.
But on Monday, the appeals court lifted the ban on Azamn and reduced the sentences to six months in jail for Maamari and one year for Haj, lawyer Yacoub al-Harithi said.
Maamari and Haj, who were released on bail in October, will appeal the latest sentencing, sources close to the pair said.
Ten international rights groups had urged Sultan Qaboos to revoke the closure order and end a crackdown by the Omani authorities on journalists and activists.
A joint statement by the 10, including Reporters Without Borders (RSF) and the Committee to Protect Journalists, said "the harsh sentences are a clear attempt to hinder the work of journalists and to curtail the rights of freedom of expression in Oman".
Oman is ranked 125th out of 180 countries in RSF's 2016 World Press Freedom Index.