"We were not terrorists before, nor are we now, and the court has proved that we are innocent," Ishaq told his supporters.
Chaudhry Jehangir, the chief prosecutor for Punjab province, said Ishaq had been freed after the Supreme Court agreed on Tuesday to bail conditions of one million rupees ($12,000).
Defence lawyer Qazi Misbahul Haq said his client, arrested in September 1997, was implicated in 45 cases, mostly murder.
He was also accused of masterminding, from behind bars, the 2009 attack on the Sri Lankan cricket team in Lahore, which wounded seven players and an assistant coach, and killed eight Pakistanis.
The attacks saw Pakistan stripped of its right to co-host this year's cricket World Cup and the country has since hosted no top foreign teams.
In March, police said they had arrested six alleged plotters over the Sri Lankan attacks from Pakistan's main Taliban faction, with which LJ has ties.
Ishaq has already served seven and a half years for attempted murder.
Lashkar-e-Jhangvi is regarded as Pakistan's most extreme Sunni terror group, accused of killing hundreds of Shiite Muslims after its emergence in the early 1990s. It was banned by then president Pervez Musharraf in 1999.
The group played a key role in the 2002 kidnap and murder of American journalist Daniel Pearl from Karachi and in twin failed assassination bids on key US ally Musharraf in December 2003.Bomb and suicide attacks across the country have killed around 4,500 people since 2007 and Pakistan says it has lost thousands of troops in fighting.