Rolando Del Torchio was picked up at a port on the southern island of Jolo, a stronghold of the Abu Sayyaf militant group, national police spokesman Wilben Mayor, told AFP.
Del Torchio was in poor health when he was found in the early evening inside a boat at the port, Mayor said.
"The... team decided to bring the kidnap victim to the Trauma Centre (local military hospital) where he will be taken care of by a military doctor," Mayor said, citing a report by provincial police.
Armed men snatched Del Torchio at gunpoint at his pizza restaurant on the city of Dipolog, about 400 kilometres (240 miles) northeast of Jolo, in early October last year.
The identities of the actual kidnappers were never known, but the authorities said they suspected he was eventually taken by boat to the Abu Sayyaf, who usually ransom off their hostages for large amounts.
"No further details as of this time," Mayor replied by text when asked which group had kidnapped Del Torchio and whether ransom was paid for his release.
The Abu Sayyaf is a radical early 1990s offshoot of a deadly Muslim insurgency for independence in the Muslim-populated south of the mainly Catholic Philippines.
The group has been blamed for the country's worst terror attacks including a Manila Bay ferry bombing that claimed 116 lives in 2004.
Since 2014 the Abu Sayyaf had abducted 22 other foreigners, including a Malaysian who was beheaded last year, and an elderly South Korean man who died apparently of illness in the same year while in captivity.
The gunmen have threatened to kill two Canadians, a Norwegian and a Filipina they abducted in September last year unless ransom was paid by Friday.
The deadline for the four lapsed with no news on the situation of the four hostages.
Del Torchio worked as a missionary for the international organisation PIME in the south from 1998 before retiring in 2000, colleagues told AFP shortly after he was abducted.
Three of the group's members have been kidnapped in the past but were eventually released.
The Italian foreign ministry released a statement on Friday confirming Del Torchio's freedom, and thanked local authorities for their help.
"Italian national Rolando Del Torchio... was released today and is currently in the custody of the Philippine authorities," the statement said.
"The foreign ministry thanks the Manila authorities for their excellent cooperation and commitment, which permitted the release of the Italian national".