Shiromini Satkunarajah, 20, had been taken to a detention centre after being refused asylum.
Bangor's vice chancellor wrote to the Home Office, after a National Union of Students (NUS) petition backing her bid to stay attracted 27,000 signatures.
"This is the news we've all been hoping for," said Arfon MP Hywel Williams.
NUS Wales was "overjoyed" and added: "It is imperative that we value people, their skills, experiences, and cultures, whoever they are and wherever they come from."
The Home Office has been asked for a comment.
Miss Satkunarajah, who was born in Sri Lanka but has lived in the UK for eight years, is due to finish her electrical engineering degree this summer.
But she was arrested last week and taken to Yarls' Wood Detention Centre in Bedfordshire to await deportation with her mother on Tuesday.
Miss Satkunarajah has only three months left before graduating and Mr Williams raised a Point of Order in the House of Commons about her plight on Monday.
"I'm so very glad that Shiromini and her mum have had this deportation order rescinded and released from the detention centre," he said.
The Plaid Cymru MP said that since the campaign was launched on Friday she had received messages of support from across the country.
NUS Wales deputy president Carmen Smith said: "I remain of the steadfast view that deporting Shiromini would have been an absolutely disgusting thing to do.
"We must also remember the value of education, and what it can accomplish. It is with that in mind that our work is not over.
"We must continue to speak up for a tolerant and welcoming society, where everyone can benefit from an inclusive education, whatever their background."
A Bangor University student threatened with deportation has been told she can remain in the UK, her local MP has said.