The move to free leaders from several ethnic groups is the most significant breakthrough since conflict broke out in the northern Tigray region, threatening the unity of Africa's second-most populous state.
Some leaders of the Tigray People's Liberation Front, the party fighting Prime Minister Abiy Ahmed's central government, are among those freed.
"The key to lasting peace is dialogue," a statement from the government communications office said.
"One of the moral obligations of a victor is mercy."
The state-run Ethiopian Broadcasting Corporation's list of those being freed included two political leaders from Oromiya: Bekele Gerba, a senior leader of the Oromo Federalist Congress party, and Jawar Mohammed, founder of the Oromiya Media Network.
Bekele Gerba's son Samuel Bekele later tweeted the two men were freed.
They had been charged in September 2020 with terrorism offences.
Oromiya is home to Ethiopia's biggest ethnic group and is Abiy's political heartland. The region has a long-running insurgency rooted in grievances about perceived political marginalisation and rights abuses by the security services.
The leader of the Balderas for Genuine Democracy opposition party, Eskinder Nega, has also been released, his party announced on Twitter.
Eskinder, an ethnic Amhara journalist and blogger, was charged alongside Jawar, Bekele and more than a dozen other political activists.
Among others freed are Abay Weldu, a former president of Tigray, and Sebhat Nega, the founder of the TPLF.
Getachew Reda, spokesman for the TPLF, could not be reached immediately for comment.
Will Davison, senior Ethiopia analyst at the Brussels-based thinktank International Crisis Group, said the announcement was "the first signs in some time that the federal government is looking to take serious actions towards political reconciliation".
But he warned the release of a few prisoners did not mean the resolution of violent conflict.
After war broke out in November 2020, Abiy's forces - supported by the Eritrean military - quickly captured the main cities. The government declared victory three weeks later.
Months of fighting and reports of grave rights abuses followed.
The Ethiopian and Eritrean militaries withdrew from most of Tigray at the end of June, but the UN said a "de facto government blockade" prevented aid from entering. The government has denied blocking aid.
Saying they wanted to reopen supply lines for humanitarian aid, Tigrayan forces then pushed south and east into the neighbouring regions of Afar and Amhara in July, leaving reports of rights abuses in their wake.
They announced an alliance with the insurgent Oromo Liberation Army in August, threatened the capital and tried to cut a key transport corridor.
But the military pushed Tigrayan forces back in December. Some sporadic fighting and airstrikes in parts of Tigray continue.
No humanitarian aid has entered since December 15, with doctors in the region's main hospital saying it is a week from collapse.
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