Last year Ahmed became the first bowler to be banned for 12 months for his bowling action, under ICC rules which say bowlers can bend their arms by up to 15 degrees, the limit detectable by the naked eye.
"After examining the report from Professor Bruce Elliott following an independent reassessment of Ahmed's bowling action, the suspension on Ahmed's bowling has been lifted by the ICC," a Pakistan Cricket Board statement said on Thursday.
The lanky 30-year-old underwent remedial measures and his remodelled bowling action was tested and approved by Elliott in the biomechanics department of Western Australia University last month.
Ahmed has been allowed by the ICC to resume bowling at international level with immediate effect, it added.
"I hope the worst period of my career is over now and I am ready to play for my country," said Ahmed, who was called up for the preliminary squad for Pakistan's tour of South Africa next month.
"It was a very difficult year for me as I was not allowed to do what I think I am best at. I would love to play my part in Pakistan's tour of South Africa and then in the World Cup," he told AFP.
However the seamer can be reported and banned in future if his action deteriorates again, according to ICC rules announced last year.
Ahmed was called for "chucking" during the first Test against England at Multan in November last year, after being reported during Pakistan's tour of the West Indies in May 2005.
Under ICC regulations if a bowler is reported twice within a year he is banned for 12 months.
Ahmed, who has taken 51 wickets in 10 Tests and 33 in 32 one-day matches, has been plagued by an illegal bowling action. He was first reported in 1998 but was cleared after undergoing corrective training guided by former West Indian fast bowler Michael Holding.
He was reported again in January 2004 but cleared by a panel of Pakistani bowlers.
The lifting of the ban will further strengthen Pakistan's attack ahead of the South Africa tour and the 2007 World Cup in the Caribbean, after Shoaib Akhtar and Mohammad Asif had their bans for doping overturned earlier this month.