The Immigration Department had turned down David Wainggai's application for a visa after he arrived by boat with 42 other Papuan asylum seekers in January.
The others were all granted protection, a move that infuriated Jakarta and prompted the withdrawal of the Indonesian ambassador.
But Australia decided that Wainggai, 29, the son of a Papuan independence leader, was eligible for residence in Japan as his mother was born there and he has remained in an immigration detention centre on Christmas Island.
The Refugee Review Tribunal ruled late yesterday that he was entitled to protection and referred the case back to the immigration department.
A department spokesman said a decision on whether to grant him a protection visa was likely within days.
"The department will conduct a further series of health and character checks just to ensure that there has been no change in the information originally provided when he was first interviewed," he said.
Wainggai would be released from the detention centre on a bridging visa, and then allowed to the mainland if the protection visa was granted, he added.
Jakarta feared Australia was signalling its support for Papuan separatists by granting them protection visas.
Indonesia has since returned its ambassador, after Prime Minister John Howard proposed tightening Australia's immigration and asylum laws.