The decision came as the leaders of the anti-establishment Five Star Movement (M5S) and the far-right League inched closer to a deal for a coalition government, just days after Mr Berlusconi signalled he would not block such an agreement.
The Corriere Della Sera reported that a Milan court ordered the immediate "rehabilition" of Mr Berlusconi on Saturday, which "cancels all the effects" of his 2013 tax fraud conviction - including a ban on holding elected office.
The ban on the 81-year-old media mogul, who is notorious for his "Bunga Bunga" sex parties, had originally been until 2019 and the court's decision taken on Friday was made a month ahead of schedule, the newspaper added.
It means that Mr Berlusconi would be able to again run for prime minister if coalition negotiations fail and new elections are called.
But it seems the decision has come too late, as the M5S and the League have reportedly come to an agreement on a government program.
A right-wing coalition including the League and Mr Berlusconi's Forza Italia (FI) party won 37 per cent of the vote in March 4 elections, while the M5S became Italy's largest single party with nearly 33 per cent.
However, coalition talks were stalled for two months as the M5S insisted the League, which led the right-wing coalition with 17 per cent of the vote, ditch Mr Berlusconi and his party.
On Wednesday, Mr Berlusconi seemed to give the green light for the League to go ahead without him, and its leader Matteo Salvini and the M5S's Luigi Di Maio have since met and agreed on a government program and a leader, according to local media.
Dubbed "the immortal", Mr Berlusconi dominated Italian politics for more than two decades, and despite sex scandals, serial gaffes and legal woes, he made an astonishing return from political oblivion for the March vote.
However, coming second to the League in his conservative alliance was a humiliating setback for Mr Berlusconi, who was forced out of parliament in 2013 after being convicted of corporate tax fraud.