President Raul Castro said the move was a goodwill gesture after receiving numerous requests by relatives and religious institutions.
But US national Alan Gross, who is serving 15 years for crimes against the state, is not among those to be freed.
On the separate issue of foreign travel for Cubans, President Castro said it was too early to lift restrictions.
The president told the National Assembly that those who urged a lifting of travel restrictions "are forgetting the exceptional circumstances under which Cuba lives, encircled by the hostile policy... of the US government".
Cubans require an exit visa to leave the country, and it is often denied to people who work in key professions or are out of favour with the authorities.
Cuba's 'strength' President Castro said that 86 foreign prisoners from 25 countries would be freed, and that diplomats would be notified shortly.
However, Cuban Vice Foreign Minister Josefina Vidal told the Associated Press that American Alan Gross - jailed for taking internet equipment to the Communist-run island - "is not on the list".
Havana's refusal to free him has led to frozen relations with the United States.
Alan Gross, 62, was detained in December 2009 while he was delivering computers and communications equipment to the Jewish community in Cuba. He was sentenced in March 2011.He was working as a contractor for the US state department.
President Castro also cited an upcoming visit by Pope Benedict XVI among the reasons for the amnesty, saying the humanitarian act showed Cuba's strength, AP reports.
Cuba's governing body, the Council of State, said some people convicted of crimes against "the security of the state" were on the list.
"All of them have completed an important portion of their sentence and shown good behaviour," read an official government statement quoted by Prensa Latina.
However, the authorities stressed that those convicted of serious crimes like murder, espionage or drug trafficking would not be part of the amnesty.
Black Spring Elizardo Sanchez, who leads the independent Cuban Commission on Human Rights, attacked the president for not talking about "depenalising the exercise of human rights".
Last July, President Castro agreed after talks with Catholic Church leaders to free the 52 dissidents still behind bars after the crackdown in 2003.
The mass arrests that year, which became known as Cuba's Black Spring, provoked widespread international condemnation.
The European Union called off co-operation with the island, which was only officially resumed in 2008.
Cuba denies holding any political prisoners, saying they are mercenaries in the pay of the US aiming to destabilise the government.
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