Chen, accused of money laundering and corruption while in office, was freed last Saturday by a Taipei district court. The prosecution had sought a review of the decision, the Central News Agency reported.
Prosecutors said they planned to investigate several other corruption cases allegedly involving Chen and his wife, and allowing Chen to remain free might deter witnesses, including three of his former aides, to provide information.
Chen, 58, had been detained since Nov. 12 but was ordered released without bail following indictments against him and 13 others. The judges said they did not believe Chen posed a flight risk.
Accused of embezzling about $18 million, Chen is the island nation's first former president ever to face prosecution, CNN said. A trial date has not been set.
Chen, who was president from 2000 until May 2008, has denied any wrongdoing, claiming he is being targeted because of his stand against China.
While in office, Chen strongly advocated independence for Taiwan, which mainland China claims as its territory. President Ma Ying-jeou, who succeeded Chen, has sought to pursue a friendlier policy toward China.