Lance Corporal Joseph Scott Pemberton has been in prison since the October 2014 killing of Jennifer Laude, whom he met at a bar while on a break from military exercises in the northern city of Olongapo.

A local court ruled last week that Pemberton qualified for early release due to good behaviour, but was still being held due to an appeal.

Duterte's pardon clears all legal obstacles to the soldier's release, despite him serving just over half his 10-year sentence.

Duterte, a former prosecutor, said in a televised speech that it was his personal decision to pardon Pemberton after learning about his case in the news.

"You have not treated Pemberton fairly. So I will release him (through) pardon," he said after meeting his cabinet, including the justice minister.

Duterte said officials had not accurately measured the jail time served by Pemberton under a law that rewards good behaviour with shorter terms.

The Laude family lawyer condemned the decision, calling it a "mockery" of the country's justice system.

"This is another injustice -- not only to Jennifer Laude and family but a grave injustice to the Filipino people," Virginia Suarez said in a statement.

"This is a travesty of Philippine sovereignty and democracy."

The pardon has renewed anti-American sentiment in the Southeast Asian nation, where groups have long called for the removal of US military presence.

Renato Reyes, leader of the leftist group Bayan, criticised the president's remarks and condemned Pemberton's "special treatment."

"If Filipinos want pardon... they need to undergo a long process. The American soldier that killed a Filipino was given an express lane," he tweeted.

The pardon came despite Duterte shifting away from the US to seek closer relations with China since assuming power in 2016.