The Kerala High Court granted conditional bail to Latorre Massimiliano and Salvatore Girone on a surety of around $200,000 each and on condition they surrender their passports, The Times of India newspaper reported.
The marines also are under strict reporting orders and must present themselves to the police daily, as well as remain within 6 miles of the main Kochi police station.
The Italian government has assured the court that the men won't attempt to leave India, The Times of India report said.
However, the diplomatic tug of war between New Delhi and Rome continues over where, and when, the marines will be tried.
No trial date has been set for the two men who have been held in prison in the Kerala state capital Trivandrum.
The two Indian fishermen, aged 25 and 45, were killed around 14 miles off the Kollam coast of the state of Kerala, southern India, when two armed guards on the Italian-flagged oil tanker Enrica Lexie allegedly fired at the fishing boat.
Preliminary assessment by marine authorities is that the guards might have mistaken it for a pirate vessel, a report by the PTI said at the time.
Lawyers for the men have said the killing of the fishermen was "accidental" and insisted that Indian courts didn't have jurisdiction over the incident, the Press Trust of India reported earlier this month.
A civil case over the shooting deaths was settled in late April when each family of the dead fishermen accepted around $190,000 as compensation and for dropping the charges.
The incident sparked an immediate flurry of diplomatic exchanges when Indian authorities took the two Italian marines into custody.
It also has set created tensions between India's Supreme Court and the Kerala High Court over jurisdiction.
Italy insists the marines can't be charged under Indian law because the alleged incident took place in international waters.
In April India's federal government told the Supreme Court that Keralan police had no jurisdiction to detain the Italian ship or investigate the incident because it had occurred on the high seas, the BBC reported.
But Keralan officials have stood firm. "We still stand by our position that the incident took place in our waters and we will try them under our laws," Kerala's Chief Minister Oommen Chandy said.