Violence continued in several parts of the country, with activists saying two died in the Baba Amr district of Homs, and at least four soldiers were killed in an ambush carried out by a group of military defectors in the country's south on Wednesday.
The prisoners' release, reported by the state-run news agency SANA, followed accusations by Human Rights Watch that Syrian authorities were hiding hundreds of detainees from the observers now in the country.
The New York-based group said the detainees have been transferred to off-limits military sites and urged the observers to insist on full access to all sites used for detention.
HRW's report, issued late Tuesday, echoes charges made by Syrian opposition members that thousands of detainees were being transferred to military sites ahead of the observers' visit.
Syrian officials have said the Arab League monitors will have unrestricted access to trouble spots but will not be allowed to visit sensitive military sites.
"Syria has shown it will stop at nothing to undermine independent monitoring of its crackdown," said Sarah Leah Whitson, Middle East director at Human Rights Watch. She said it was essential for the Arab League "to draw clear lines" regarding access to detainees, and be willing to speak out when those lines are crossed.
SANA said the prisoners released Wednesday did not include those with "blood on their hands."
Last month, Syrian authorities released 2,645 prisoners in three batches but activists and critics say thousands more who were picked up in the past months remain in jail.
The Arab observers kicked off their one month mission in the violence-wracked country with a visit on Tuesday to Homs - the first time Syria has allowed outside monitors to the city at the heart of the anti-government uprising.
A local official in Homs told The Associated Press that four observers were in the city on Wednesday as well, touring various districts. He declined to give his details and spoke on condition of anonymity for security reasons.
Syrian TV said observers toured several trouble spots in Homs including the neighborhoods of Bab Sbaa, Baba Amr, Inshaat and al-Muhajireen, adding they met with residents there.
Homs residents said anti-government protesters were preparing for a second day of demonstrations, despite a massive security presence in the city.
"I can see riot police with shields and batons on main streets and intersections, they are everywhere," said one resident, speaking over the phone. He declined to give his name for fear of reprisals.
The resident and other eyewitnesses said most of the tanks were gone but police and security agents were spread out. "Snipers are all over Homs, this is something the observers don't see," the resident said.
Homs-based activist Majd Amer said members of the Syrian opposition wished to reach the observers but didn't know how.
"They are hostages in the hands of the regime," Amer said of the monitors. "They are totally dependent on authorities to move around, make calls and even to get their food and drink," he added in frustration.
In Washington, State Department spokesman Mark Toner demanded Syrian authorities allow the monitors full access to the Syrian people.
"We expect that Arab League monitors will be able to deploy and move freely within Homs and other Syrian cities as protesters peacefully gather," Toner said Tuesday night. He suggested the international community "will consider other means to protect Syrian civilians" if authorities continued to resist the Arab League efforts.
Activists said four soldiers were killed and 12 others wounded in the ambush Wednesday that targeted a joint military and security convoy and that was carried out by defectors in the southern province of Daraa.
The British-based Syrian Observatory for Human Rights, which reported the ambush, also said troops conducted raids and arrests in villages in the south, forcing residents who have been on strike for almost three weeks to open up their shops.
The Local Coordination Committees also said the army stormed the village of Khirbet Ghazaleh with bulldozers to break the strike that lasted 18 days.
The Observatory said two people died Wednesday in Homs, one by fire from security forces fire and the other from wounds sustained in shooting the day before.
The team of about 60 Arab League monitors arrived in Syria on Monday night - the first foreign observers allowed in since March, when the uprising against President Bashar Assad's authoritarian rule began. The League said a team of 12 visited Homs on Monday.
On Tuesday, tens of thousands of defiant Syrian protesters had thronged the streets shortly after authorities withdrew tanks from Homs, in the first sign the regime was complying with the League's plan to end the 9-month-old crackdown against dissent.
After agreeing to the League's pullback plan on Dec 19, the regime intensified its crackdown on dissent; government troops killed hundreds in the past week and Syria was condemned internationally for flouting the spirit of the agreement.
The U.N. says more than 5,000 people have been killed since March in the political violence across Syria.
Associated Press Writer Albert Aji in Damascus, Syria, contributed to this report.