Zia, 73, was sent as the specialised state-run hospital certified her fitness to serve the 10-year prison term after she was admitted to the hospital on October 6 following a High Court order.
"She was sent to the jail after medical examination of her health by doctors," home minister Asaduzzaman Khan Kamal told PTI as the ex-premier was taken back to the old premises of Dhaka Central Jail where Zia is the lone inmate.
Bangabandhu Sheikh Mujib Medical University (BSMMU) hospital's director Brigadier General Abdullah Al Harun said the ex-premier was released after a medical board formed for her treatment issued her discharge certificate.
But BNP secretary general Mirza Fakhrul Islam Alamgir alleged Zia was taken to prison "illegally" adding "doctors did not release her rather this was all the doing of the hospital's director".
Zia, was serving 10 years of prison term in two graft cases at the correction centre until she was admitted to the BSMMU hospital for treatment due to different ailments.
She was taken to hospital last month when her condition deteriorated.
Her doctors say Zia cannot use her left hand because of severe arthritis. She is diabetic and also has problems with her neck and shoulder.
On return to the prison, Zia was produced before a makeshift special court inside the complex as a hearing was underway on a third corruption charge involving a foreign energy giant.
"Zia said she is still sick and yet the government produced her before the court," a counsel of the ex-premier said.
The court is trying her and 10 others for contracting out a major exploration deal to Canadian company Niko abusing her power in exchange of kickbacks uring her tenure as the prime minister in 2001-2006.
The development came a day after Prime Minister Sheikh Hasina concluded on Wednesday a two-round crucial dialogue with opposition platform National Unity Front (NUF) ahead of the upcoming general elections expected by next month.
The dialogue visibly failed to break an impasse on the polls time government system but the ruling party said talks could continue despite the end of the dialogue process.
Zia's Bangladesh Nationalist Party boycotted the 2014 vote in which Hasina returned to power but is expected to contest the election this year.