However, the Paris court also sentenced Le Pen to a three-year jail term: two suspended and one with an electronic ankle tag.
This could make a presidential campaign politically and logistically difficult.
It is now up to Le Pen to say if she will run to become modern France's first far-right president.
She is due to give a prime-time TV interview later on Tuesday, in which she might make an announcement on her political future.
Le Pen previously said she would be reluctant to wage a presidential campaign while serving a sentence under electronic monitoring, arguing that it would interfere with campaigning and undermine her credibility.
But she is yet to confirm what she will do.
As she left the courtroom, Le Pen was smiling but did not speak, and went to the headquarters of her party, the anti-immigrant National Rally (RN), to discuss what to do next.
Le Pen had been convicted in March 2025 of embezzlement and banned for five years with immediate effect from holding public office, and thus from making her long-planned fourth bid for the Elysee Palace.
Tuesday's appeal judgment, under which Le Pen is ineligible to hold public office for 45 months, 30 of which are suspended, means she will be eligible to stand when voters go to the polls in April 2027, because she has already served the 15-month ban, which has been running since 2025's ruling.
The decision is likely to trigger intense debate within the RN, which has spent months preparing for two possible futures: one led by Le Pen and another by party president Jordan Bardella.
The electronic tag was stipulated as part of a softened jail sentence, and means she would not actually have to go to jail.
A sentencing judge will decide on the terms of Le Pen's tag, setting out the hours when she can be away from her home and what time she must return at night.
Restrictions on weekends are usually tighter.
Polls have consistently shown both RN figures as strong contenders to reach a presidential run-off.
Some recent surveys have even suggested Bardella would outperform Le Pen in the first round.
Le Pen's conviction stems from charges that National Rally figures misused European Parliament funds intended for parliamentary assistants, instead paying party staff in France.
In 2025, judges found Le Pen had played a central role in the scheme, a finding she has consistently disputed.
The original verdict sparked condemnation from Le Pen's allies in France and abroad, who accused the judiciary of influencing democratic competition.
Her opponents argued that elected officials must be held to the same legal standards as any other citizen.
"What is essential for us, what we have been saying for years, is that they misappropriated, stole public money - European taxpayers' money," the European Parliament's lawyer, Patrick Maisonneuve, told reporters.
"We have been saying this for years, and it has now been confirmed for the second time: first by the lower court, and today by the Court of Appeal."
