The Co Donegal man was released just after 4pm this afternoon after his case was reviewed.
Gallagher, who killed mother and daughter Anne and Annie Gillespie in the grounds of Sligo Hospital in 1988, signed himself back into the hospital last month.
Gallagher had been on the run since escaping from the Central Mental Hospital in 2000 .
He moved to England but in 2003 he returned to live in Strabane – just a mile from his home in Lifford, Co Donegal.
Because he had not committed a crime in Northern Ireland he could not be arrested.
Relatives of Gallagher were told of his pending release today.
They were contacted by Gardai at 3pm and told Gallagher was to be released at 5pm.
However at 4.05pm the double killer walked out of the gates of Dundrum Central Mental Hospital.
A number of conditions have been imposed on Gallagher in connection with his release.
He is allowed to visit both his mother at Post Office Lane in Lifford and also his father’s grave.
However he has been banned from having any contact with members of the Gillespie family of members of his own estranged family.
A spokesman for the Gallagher family told Donegaldaily.com they are distraught at his release.
“This is an utter disgrace. We were given two hours notice and then this was cut down to an hour.
“We have had no say or we have not been able to put our case forward.
“We are living in complete fear of him and now he will be allowed to walk among us again.
“WE do not think the authorities thought this through properly and we have never been consulted on the matter.
“If anything else happens then the authorities will have blood on their hands,” said the spokesman.