WikiLeaks source Chelsea Manning's sentence commuted by President Obama
In one of his final acts as president, Obama pardoned 64 people and commuted the sentences of 209 others.
This included the imprisoned former soldier who was convicted in August 2013 of espionage and other offences after admitting to handing classified documents over to WikiLeaks.
The date sharing site claimed "victory" following the announcement.
"VICTORY: Obama commutes Chelsea Manning sentence from 35 years to 7. Release date now May 17," WikiLeaks wrote on Twitter.
Among those pardoned was James Cartwright, a former four-star general who lied to the FBI about his discussions with journalists about Iran's nuclear programme.
But Manning – who had been serving time in solitary confinement and is now eligible for release in May – is by far the most high-profile name on Obama's list.
Manning admitted handing 700,000 sensitive military and diplomatic after admitting to handing classified documents over to WikiLeaks.
Activists had argued her sentence is excessive and point to the psychological frailty of the transgender soldier who has already made two suicide attempts.
"This move could quite literally save Chelsea's life," said Chase Strangio of the American Civil Liberties Union.
Obama's move is something of a surprise, coming in the midst of a scandal over the hacking and the release of Democratic party emails that roiled the 2016 election.
In recent weeks the White House has refused to be drawn on a possible commutation or pardon, but has made a stark difference between Manning, who went through the courts and admitted wrong doing, and the likes of Edward Snowden.
Snowden – who fled to Hong Kong and then Russia after making a shattering revelation in 2013 of a communications and internet surveillance system spanning the globe – was not on Obama's list.
Also not on the list was Bowe Bergdahl, a US Army sergeant held captive for five years by the Taliban before his release in a prisoner swap, who is due to be court-martialed for desertion.
Other names not on the list are General David Petraeus - who improperly shared classified information - and Obama's ally Hillary Clinton.
There had been wild speculation that Obama may chose to preemptively pardon her to forestall any Republican-led prosecution.
Presidents can theoretically pardon people before they are even sentenced.