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Immigration Minister Chris Bowen said in a statement on Thursday that he had personally considered Fawad Ahmed's case "and decided to grant a permanent visa for him to be able to stay, work and play cricket in Australia.''
Ahmed fled persecution in northern Pakistan two years ago after receiving death threats from religious extremists who accused him of promoting Western values.
Last week, Cricket Australia flew Ahmed from Melbourne to Brisbane to help the team's batsmen prepare for their first test against South Africa. Ahmed's delivery style is similar to South African legspinner Imran Tahir.
Ahmed's refugee claim was initially rejected by the Refugee Review Tribunal, but subsequent attempts were supported by Cricket Australia Chief Executive James Sutherland and Cricket Victoria.
"This is such a special moment in my life,'' said Ahmed, who took five wickets for Melbourne University last weekend. "I'm hopeful I can play the highest level cricket as well. I'm really grateful to the government and all the people in cricket who helped me.''
Various media reported that several teams in Australia's domestic Twenty20 league are interested in Ahmed.
"The last three years was a very hard time,'' he added. "I couldn't sleep at night times because it was very stressful. I was so anxious I couldn't perform well (at cricket). I'm pretty happy because I can put all that behind me and look forward to my future and start a new life here in Melbourne.''
Sutherland said the cricket community rallied to support Ahmed.
"This is proof that through cricket, we can help achieve life-changing outcomes for people,'' he said in a statement.
Australia opening batsman Ed Cowan, who scored his first test century in Brisbane on Monday, has been a mentor to Ahmed and stood by his friend's side as he awaited word from the immigration department.
"We often see considerable negativity surrounding asylum seekers, so it's incredibly pleasing that an educated, skillful and compassionate young man like Fawad has been given the chance to make a life for himself in Australia,'' Cowan said.
"We have all been touched by his story and immensely proud of how far he has come.''