Suu Kyi has been in detention for 15 of the last 21 years for her democratic advocacy in the impoverished Asian nation.
The crowd cheered and began to surge forward as police began removing barricades around her crumbling mansion where she has been locked up by the military junta for most of the past two decades.
The authorities went inside to read the order to release her from house arrest, a government official said.
"She is released now," said the official, who did not want to be named.
More than 1,000 people were gathered outside in hope of seeing the 65-year-old dissident, known to her supporters simply as "The Lady", the report added.
Suu Kyi's supporters were wearing T-shirts with her image on it and with printed words that reads:"We stand with Aung San Suu Kyi." They were jubilant as they were being watched and filmed by undercover agents of the military regime.
Suu Kyi swept her National League for Democracy (NLD) party to victory in an election held two decades ago but the regime did not allow her to take her post as the nation's Prime Minister.
Last Sunday, Myanmar had its first election in 20 years under the military regime. Official poll results have not been released but officials of the regime announced they have won majority seats in the parliament.
Suu Kyi failed to participate
in the elections saying the new election laws were passed to favor the regime's candidates. Her decision not to participate led to the disbandment of her party as the junta canceled its accreditation.
Pro democracy candidates complained of widespread fraud and intimidation by candidates supported by the regime.
Suu Kyi's future in politics remains uncertain as most of the ranking members of the ruling junta have been elected in the parliament.