No arrest warrant was immediately issued for Mehmet Ali Agca, whose whereabouts were not immediately known. It was not clear if the appeals court prosecutor, Nuri Ok, will object to the ruling.
The appeals court ruling came eight days after Agca was released from an Istanbul prison.
After the release, Turkish Justice Minister Cemil Cicek ordered a review of Agca's complicated case to see whether any errors were committed in freeing him amid strong criticism.
If the prosecutor approves the ruling, then he will relay the decision to the local prosecutor in Istanbul who would then issue an arrest warrant for Agca. Until then, police cannot start a manhunt for him.
Agca served 19 years in prison in Italy for shooting the pope on May 13, 1981, and 5½ of a 10-year sentence in Turkey for the murder of a Turkish journalist in 1979.
In ordering his release, the local court had counted the time served in Italy, but the appeals court on Friday said his time Italy should not have been deducted from his time in Turkey.
Many Turks were outraged at the decision to free Agca, approved by local courts, and Cicek apparently was responding to widespread criticism of the release after Agca served about 5½ years for murdering Turkish journalist Abdi Ipekci, the chief columnist of Milliyet, in 1979.
"All of this shows that there are loopholes in our system that have to be corrected without delay so that we don't have many more cases like Agca's on our hands," Ilnur Cevik, chief columnist and publisher of the New Anatolian newspaper, wrote Friday.
Agca, 48, received a hero's welcome by his ultranationalist admirers, who tossed flowers at the car whisking him through the gates of the high-security Kartal Prison outside Istanbul.