The 79-year-old is serving a 15-month sentence for contempt of court at Estcourt Correctional Centre.
The nature of his illness was not specified, but a statement said he would complete the rest of his sentence in the community under special conditions, the BBC reported on Sunday.
Zuma has been in hospital for the past month where he has undergone surgery.
He will remain there until he has been discharged.
Zuma handed himself in to police in July after being sentenced for failing to attend an inquiry into corruption during his presidency.
His jailing was unprecedented for an ex-president, sparking violent protests and looting.
Though he was forced out of office by his own party in 2018, the African National Congress (ANC), he retains a loyal body of supporters, especially in his home province of KwaZulu-Natal.
Zuma was sentenced on June 29 for defying an instruction to give evidence at an inquiry into corruption during his nine years in power. He has testified only once at the inquiry into what has become known as "state capture" - meaning the siphoning off of state assets.
Businessmen have been accused of conspiring with politicians to influence the decision-making process while he was in office. Zuma has repeatedly said he is the victim of a political conspiracy.
The decision to grant him parole was compelled by a medical report to South Africa's prison department, it said.
He also faces a separate corruption trial, which is due to resume on September 9.
Zuma's medical parole could only be revoked if he does not comply with the placement conditions, Correctional Services spokesperson Singabakho Nxumalo said.
"We want to reiterate that placement on medical parole is an option available to all sentenced offenders provided they meet all the requirements. We appeal to all South Africans to afford Zuma dignity as he continues to receive medical treatment," said Nxumalo.
Zuma's spokesman said he had not spoken to the former president since the news broke, but that "he should have been relieved".