Military equipment exports to Saudi Arabia had been restricted in 2019 and 2020 to prevent their being used in the Yemen conflict.
But the embargo is no longer necessary “in light of the changed situation” on the ground, the government said in its statement, which also praised Saudi Arabia's recent peace mediation efforts.
Yemen has been mired in conflict since the Iran-aligned Houthi rebels ousted the government from the capital Sanaa in late 2014.
A Saudi Arabia-led military coalition intervened in 2015 with the aim of restoring the government.
Peace initiatives have seen increased momentum since Saudi Arabia and Iran agreed in March to restore diplomatic ties severed in 2016.