Justice Minister Anna Maria Cancellieri asked for the former CIA agent – Bob Seldon Lady or "Mister Bob" – to be held in Panama and now has two months to request his extradition.
Seldon Lady and 22 other CIA agents were convicted in absentia in 2009 of the kidnapping of Osama Mustafa Hassan, a radical Islamist opposition figure better known as Abu Omar.
It was one of the world's biggest court cases against the US "extraordinary rendition" programme to interrogate alleged Islamist militants after the September 11, 2001 attacks.
The former head of the CIA station in Milan, now 59, received the heaviest sentence, which was increased from eight to nine years on appeal in 2010. The other fugitive agents had their sentences upped from five to seven years.
The United States refused to extradite the agents.
Abu Omar was snatched from a street in Milan in 2003 in an operation coordinated by the CIA and the Italian military intelligence agency SISMI.
Abu Omar, who enjoyed political asylum in Italy at the time, was then allegedly taken to the Aviano US air base in northeastern Italy, flown to a US base in Germany, and on to Cairo, where he says he was tortured.
The "extraordinary rendition" programme was launched in 2003 by then US president George W. Bush and saw scores of suspects returned to their home countries, some of which were known to use torture.