The woman, known only as Ranjini, was quietly released from Sydney's Villawood detention centre on Thursday night.
Convenor of the Tamil Refugee Council, Trevor Grant, said she was given no reason why she was allowed to leave after three years inside.
"Now she's released she is no longer a national security threat but they still won't tell her why," he said. "So to me it's really a frightening abuse of the national security regulations for political purposes."
"As the United Nations demanded more than two years ago, all these indefinitely detained refugees not only have to be released but also compensated."
Her lawyer, David Manne, said Ranjini was relieved her ordeal was over and was looking forward to returning to the community.
The Tamil refugee - whose first husband died in the Sri Lankan civil war - arrived by boat in 2012.
After being granted asylum in Australia, Ranjini settled in Melbourne with her family. It was on the day she learnt she was pregnant with her third child that immigration authorities first interviewed her and declared her a security risk.
Ranjini was then taken to Villawood and gave birth while she was detained in the centre.
Two years ago, the High Court ruled the Immigration Department erred in its handling of the case but it made no judgement on whether she could be detained indefinitely.
Despite winning the court case, Ranjini was kept inside and, according to Trevor Grant, her children also suffered from the prolonged detention.
"They were bullied at school because they were taken to school by security guards," he said. "They had their lunch boxes checked as they came in and out of the detention centre."
Mr Grant said there were also dozens of other Tamils who had suffered the same fate, with some detained as security risks for up to six years.
"There's been a number of suicide attempts. We have dealt with a man who cut himself with a razor 100 times. We have people who have tried to hang themselves."
The Federal Government continued to be tight-lipped about Ranjini's case.
An immigration department spokesperson would only confirm in a statement "this person" had been released into the community.
