Lance Corporal Joseph Scott Pemberton has been in prison since the October 2014 killing of Jennifer Laude, whom he met at a bar while on a break from military exercises in the northern city of Olongapo.
A local court ruled last week that Pemberton qualified for early release due to good behaviour, but was still being held due to an appeal.
Duterte's pardon clears all legal obstacles to his release, despite him serving just half his 10-year sentence.
Duterte's spokesman Harry Roque, a lawyer who represented the Laude family during the trial, confirmed Duterte's decision.
"The president has erased the remaining punishment against Pemberton... He can now go home because of the pardon," Roque told reporters.
The Laude family lawyer condemned the decision, calling it a "mockery" of the country's justice system.
"This is another injustice -- not only to Jennifer Laude and family but a grave injustice to the Filipino people," Virginia Suarez said in a statement.
"This is a travesty of Philippine sovereignty and democracy."
The pardon has renewed anti-American sentiment in the Southeast Asian nation, where groups have long called for removal of US military presence.
Edre Olalia, of the National Union of Peoples' Lawyers, called the pardon "a brazen and shameless sell-out" of country's sovereignty.
The pardon came despite Duterte shifting away from the US to seek closer relations with China since assuming power in 2016.
He will address the nation on Monday night after meeting his Cabinet and he is expected to speak on the issue, Roque said. - AFP
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