A retrial has been ordered over the death of Shaimaa el-Sabbagh in January last year.
Images of the frail figure dying on a Cairo street after being hit by birdshot sparked outrage in Egypt and around the world.
Ms Sabbagh was with activists marching to Tahrir Square to mark the revolution that toppled President Hosni Mubarak.
Why was one death singled out?
The al-Yawm al-Sabi news website said the court had accepted an appeal filed by officer Yassin Hatim against his prison sentence and ordered a retrial.
Some Egyptians condemned the decision on social media, with the prominent 6 April protest group saying "Justice is a right" (in Arabic).
The 33-year-old mother was a leading member of the Socialist Popular Alliance Party and was among about 40 activists who had gathered to lay wreaths in Tahrir Square to commemorate those who died during the 2011 uprising.
Photographs showing her after she had been shot were widely shared on social media and hundreds of people attended her funeral in Alexandria.
At least 18 people including three police cadets were killed in clashes the day after Ms Sabbagh's death.
Dozens of police officers who stood trial over the deaths of nearly 900 protesters during the 2011 uprising have been acquitted or received suspended sentences.
Egypt's highest court has annulled a 15-year jail sentence for a policeman accused of shooting dead a protester.