Abdul-Sattar Bayrkdar, the spokesman, said the decision was taken because the journalist had no prior criminal history.
The defense appealed the original ruling to the Federal Appeals Court citing an Iraqi law stipulating a maximum sentence of only two years for publicly insulting a visiting foreign leader.
The decision came as Barack Obama made his first official visit to Iraq as U.S. president.
Muntadhar al-Zeidi was sentenced to three years in March after pleading not guilty to a charge of assaulting a foreign leader. He described his action as a "natural response to the occupation."
The journalist's act during Bush's last visit to Iraq as president turned the 30-year-old reporter into a folk hero across the Arab world, where the former U.S. president is reviled for the 2003 invasion of Iraq.
Defense attorneys have long argued that al-Zeidi's act was an expression of freedom and not a crime, and his lawyer on Tuesday said he should be freed immediately.
"We think al-Zeidi does not deserve to be imprisoned even for one day," al-Zeidi's chief defense attorney, Diaa al-Saadi, said. "What he has done falls in the category of freedom of expression and he was trying to express his anti-occupation feelings,"
Another al-Zeidi attorney, Yahya al-Ittabi, however, welcomed the court's decision, saying it did not bow to government pressure and reflected "the independence and the integrity of the Iraqi judiciary system."
But Prime Minister Nouri al-Maliki has had little sympathy for the journalist, saying the incident was more than just an insult. He described it as an assault on a visiting head of state.
Karim al-Shujairi, one of al-Zeidi's attorneys, said the appeal was filed about a week ago.
Al-Zeidi has been in Iraqi custody since he hurled shoes at Bush during a joint news conference with al-Maliki in December 2008.
Though al-Zeidi is scheduled to be released in December 2009, al-Saadi said he could be free within five months with credit for good behavior.
The news came as a surprise to al-Zeidi's family, who called it "a victory for the Iraqi people."
"We did not expect that my brother would be released before the three years," al-Zeidi's brother, Dargham, said.