Jayalalitha, one of India’s most controversial and colourful politicians, was jailed last month for four years on corruption charges.
In a case that lasted 18 years, she was found guilty of amassing unaccounted-for wealth of more than $10m (£6.1m).
Supporters wept on the streets when a court rejected an earlier bail plea.
Granting bail on Friday, India’s top court directed her to “complete all paperwork” relating to the appeal against her conviction within two months in the Karnataka high court.
Lawyers for Ms Jayalalitha, 66, had argued that she should be given bail because she is unwell and appealing against her conviction in a higher court.
But the court warned Ms Jayalalitha it would not give her “a day more” if she failed to complete the procedures.
The Supreme Court also asked the former chief minister to ensure her party workers remained peaceful.
Her supporters protests against last month’s conviction meant they had to be forcibly dispersed by police.
The Karnataka court has sentenced Jayalalitha and three other accused to four years in prison each, with Jayalalitha also facing a 1bn rupee fine ($16m, £10m). The others have been ordered to pay a fine of about $1.6m each.
Jayalalitha: Mercurial personality
- Former actress who appeared in more than 100 films
- Chief minister of Tamil Nadu on four occasions – from 1991-96, briefly in 2011, 2002-06 and 2011-14
- Has alternated in power with her great rival, 90-year-old DMK party leader M Karunanidhi
- Feted by various Indian prime ministers over the last 20 years trying to win her support
- Critics accuse her of establishing a personality cult, but supporters praise her poverty relief efforts
- Known for her extravagant lifestyle – police once discovered more than 10,000 saris and 750 pairs of shoes in a raid on her premises
Source: BBC News
