"I am satisfied that there is no need to have the state of emergency any more," President Mahinda Rajapakse said in a speech to parliament.
The laws, which give security forces sweeping powers of arrest and detention, have been renewed on a monthly basis -- with only brief breaks -- ever since they were first imposed 28 years ago.
Rajapakse's announcement means the regulations will lapse at the end of August, but similarly tough powers remain available to authorities under the Prevention of Terrorism Act (PTA).
Opposition leader Ranil Wickremesinghe also welcomed the decision, but said it had come too long after the final military victory over the Tamil Tiger rebels in May 2009.
"For the past one year, we have been asking the government to end the state of emergency," he said.The government decision comes ahead of next month's United Nations Human Rights Council meeting in Geneva which is expected to discuss Sri Lanka's performance on human rights.
The United States has been leading international calls for a war crimes investigation into the island's crushing of the rebels.
US State Department spokeswoman Victoria Nuland said Thursday's announcement "sets up a good visit" for Robert Blake, assistant secretary of state for South and Central Asian Affairs, who will travel to Sri Lanka from August 29 to 31.
Sri Lanka has so far managed to stave off censure from UN bodies thanks to the support of strong allies China and Russia.
But Asian neighbours, including India, have been nudging Colombo in recent months to remove restrictions on civil liberties in a bid to deflect Western criticism.
Maldivian President Mohamed Nasheed, who spent three days in Colombo last week on an official visit, described Rajapakse's announcement as a "bold and far sighted move".
The independent Centre for Policy Alternatives think-tank in Colombo said it was waiting to see how the government deals with those currently detained under the emergency laws.
"I suppose it is a response to the UN Human Rights Council meeting in Geneva... but in any event, it is a good sign," director Paikiasothy Saravanamuttu told AFP.
He voiced hopes that the government would not simply resort to the PTA as a fall-back.
Tens of thousands of civilians perished in the final months of fighting against the Tamil Tigers, and the United Nations has said there are "credible allegations" of war crimes committed by both sides.
Colombo has steadfastly denied any wrongdoing and resisted foreign calls for a probe.
The Tamil Tigers had spent four decades fighting for an independent homeland for the island's ethnic Tamil minority.
Opposition parties in Sri Lanka have accused the government of using the emergency laws to crack down against its political opponents, including student leaders and the independent press.
It was not immediately clear how many people are currently being held under emergency laws, and whether they would be freed or re-detained under the PTA once the emergency is allowed to lapse at the end of this month.