The students, known as "The Sussex Five", who have garnered support from the likes of Cara Delevingne, were suspended and excluded from campus last week following what the university called "repeated serious disruption of campus".
But in a dramatic move, vice-chancellor Professor Michael Farthing said the suspension had been lifted after taking account of statements from staff and students - as well as the term ending on Wednesday.
Farthing said: “These students are subject to proper disciplinary processes and I take the view that the immediate need for the suspensions to remain in force has now passed. I am therefore lifting the suspensions and exclusions with immediate effect.
“We will keep the position under review as the disciplinary processes are taken forward over the coming weeks.”
Last week, Adriano Marotta, one of the five, said: "I have a doctor's appointment on Friday where I'm due to find out whether I have diabetes or not. I emailed Michael Farthing [the vice-chancellor] to get permission to go to the doctor and have had no response.
"If I go, I face being physically removed by security because I've been banned from going anywhere on campus. That doesn't just mean study facilities - but from doctors, dentists and psychological services too."
The university added it would continue to pursue disciplinary action against the five, "who were involved in organising or leading the repeated serious disruption of campus through occupations, which have been characterised by intimidating behaviour, theft, damage and violence".
The group's plight resulted in a national outcry, and gained support from various public figures including supermodel Cara Delevingne:
Its outrageous to suspend students - who pay for education - for exercising their right to protest! Sign the petition http://t.co/6iI7ys1e2g— Cara Delevingne (@Caradelevingne) December 9, 2013
Labour MP John McDonnell meanwhile is calling for an end to the "persecution" of students who choose to exercise their right to protest.
"I am deeply anxious about the whole range of protests that are taking place because they are all peaceful, they are all students seeking to make their voices heard," he told the BBC.
"But they're being met with real intimidation and suspending students for an occupation is not acceptable."
The petition had reached nearly 9,500 signatures prior to the vice-chancellor's decision.
Michael Segalov, another member of the group, said despite the suspension being lifted, they were still a "long way" from victory.
“The ability of the vice chancellor to unilaterally suspend students has been challenged, but we are still a long way from the democratic public university," he said.
"Our disciplinary processes continue, and privatisation is continuing to descend upon our universities. It is clear that students, staff and faculty coming together will provide a framework to continue to work in fighting the commodification of education.”