A Victorian woman facing terror charges after living under Islamic State rule in Syria will be freed on bail.

Rayann El Houli has been in custody for about two months after being charged with being a member of a terrorist organisation and entering a declared area.

Her lawyers say she will fight the charges, which carry a maximum 10-year jail term.

Police argued against bail, saying there was an unacceptable risk she would spread extremist ideology.

But today a Melbourne magistrate concluded the risk to the community was low.

He said there were "exceptional circumstances" that warranted her release, including potential legal delays and her poor health.

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