The Corriere della Sera newspaper reported that the Milan court had overturned a previous decision by Italy's supreme court banning the 81-year old politician from running for office for six years.
The Italian news agency Ansa quoted Milan Chief Prosecutor Roberto Alfonso as saying that prosecutors will decide whether to appeal against the tribunal's decision.
"The "rehabilitation" by the Milan Surveillance Court puts an end to a judicial persecution and a cavalry that didn't chip away at the strength of great leadership, that, in a profoundly changed political scenario, is today still fundamental and central".
An Italian tribunal has lifted a ban on veteran centre-right leader Silvio Berlusconi from holding public office, meaning he could run to be Prime Minister in the next national election.
Berlusconi had the option of serving out his prison sentence by doing public service, and he did so, helping residents at a facility for Alzheimer's patients.
Thus sidelined, Berlusconi was forced to sit out this year's parliamentary election.
Berlusconi on Wednesday gave the go-ahead to the League, which ran in the last election in an alliance with his party, to try to form a government with the 5Stars.
Negotiations between the League and 5-Star are continuing, with President Sergio Mattarella giving them until Monday to strike an accord. His party, Forza Italia, was part of a right-wing coalition headed by Matteo Salvini, the leader of the anti-migrant League party.