Robert Langdon, 39, had been sentenced to death for shooting dead a colleague while working to protect a supply convoy under attack from the Taliban in May 2009.
Langdon has been spared the death sentence, but will face 20 years imprisonment in an Afghanistan jail.
"The Australian government welcomes the news that Mr Langdon's sentence has been formally commuted to imprisonment and that he is no longer facing the death penalty," said a spokesman for the Department of Foreign Affairs and Trade (DAFT) on Thursday.
Consular officials visited Langdon in prison as late as December 28, one of 18 visits made by Australian embassy staff in Kabul.
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The embassy also facilitated access rights for Langdon's supporters and lawyers to visit him in prison, as well as delivering him supplies.
Documents, obtained by The Australian, show that Langdon was secretly sentenced to jail in October 2010 after paying ibra - a form of compensation - to appease the dead man's family.
Langdon's family in South Australia were unaware of the judgment and a relative declined to comment when contacted by AAP.
Calls to his lawyer Stephen Kenny, who is believed to be on holiday, were not returned.
However, Mr Kenny told The Advertiser newspaper he would have to see the decision before deciding what options were available.
"I have not spoken to him (Langdon) yet, but we would be very concerned about a 20-year prison sentence in Afghanistan," he told the newspaper.
