The court in Schleswig-Holstein gave its green light to the extradition of the 55-year-old for misuse of public funds but not rebellion, which carries up to 25 years in jail.
If Puigdemont is extradited, the Supreme Court in charge of the case will not be able to try him for rebellion, which would be a severe setback for Spain.
"Extradition on the accusation of misappropriation of public funds is permissible; extradition on the accusation of rebellion is not permissible", the superior regional court of Schleswig-Holstein state said in a statement.
Puigdemont fled to Brussels after Spanish courts issued a warrant for his arrest over his role in Catalonia's declaration of independence last October.
"The amount of violence required for the charge of high treason was not seen in the altercations in Spain". The text continues: "Puigdemont was only aiming for a referendum to be held [.] He was not the inciter of violence".
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Puigdemont hailed the decision as a victory, tweeting "we have defeated the central lie of the (Spanish) state. Breach of the public peace does not apply because Carles Puigdemont was only involved in carrying out the [independence] referendum", the court said in a statement, adding that he was not a "spiritual leader" of violence.
"Every minute spent by our colleagues in prison is a minute of shame and injustice".
He is wanted in Spain for alleged misuse of public funds in relation to Catalonia's independence declaration, as well as "rebellion" in organising a referendum that Madrid deemed illegal. "We will fight until the end, and we will win!"
The current Catalan regional premier, Quim Torra, a hard-line supporter of Catalan independence, was quick to voice his reaction to the news via Twitter.
"This demonstrates once again the mistakes and lies behind a legal case which should never have been opened. We will win in Europe", Torra tweeted.
English version by Simon Hunter.