The court, instead, sentenced Fayadh to eight years in prison and 800 lashes, a statement from his lawyer said.
Fayadh was initially sentenced to death by a court in the southwestern Saudi city of Abha in November on a series of blasphemy charges
related to his poetry, causing an international outcry.
Fayadh will be lashed 800 times over 16 sessions, serve eight years in prison and must publicly declare his repentance in the media, said his lawyer Abdulrahman al-Lahim.
Al-Lahim said the defense planned to appeal the court's decision, saying Fayadh is innocent and should be freed.
Long legal battle
The initial charges against Fayadh included insulting the Prophet Mohammed, mocking the Quran and spreading atheism.
His sister, Raeda Fayadh, appealed to King Salman bin Abdulaziz Al Saud of Saudi Arabia to grant clemency to her brother.
She said her brother had done nothing wrong, having been falsely accused by a man with a personal animosity toward him.
There was nothing blasphemous in his writings, she said, and those who had accused him were damaging the image of Saudi Arabia, she said.
"He wrote in words that stupid people misunderstood," she told CNN.
This is not the first time Fayadh's sentence has changed -- he'd originally been handed a lesser sentence of four years in prison and 800 lashes on the charge of having inappropriate relations with members of the opposite sex.
The court had dismissed a prosecution request for a death sentence on the apostasy charge, citing Fayadh's declared "repentance" and testimony that indicated hostility between Fayadh and the complainant, Human Rights Watch said. The watch dog group said they'd viewed the court documents
But the prosecutor appealed the ruling, according to the rights group. In mid-November, a new judge dismissed the earlier decision, saying Fayadh's repentance was not enough to avoid a death sentence for apostasy, citing verses from the defendant's poetry.
An English translation
of the poems has been posted on the blog of U.S.-based activist and writer Mona Kareem.
Photos with women
Fayadh was initially arrested in 2013 after a personal disagreement with a man at a coffee shop in the town of Abha in relation to his poetry, according to Human Rights Watch, writers' association PEN International and the poet's sister.
Raeda Fayadh said the men had been watching a European soccer match at the coffee shop when the fight started.
The man reportedly complained to the ultraconservative kingdom's religious police, accusing Fayadh of insulting Islam in his book of poems and insulting the Saudi state.
After Fayadh was arrested, according to the rights group's account based on the court documents, the religious police discovered on his phone photos of Fayadh with several women, whom Fayadh said he met at an art gallery. These photographs were the basis for the charge of having inappropriate relations with members of the opposite sex.
Raeda Fayadh said the pictures were "all of his friends, artists that he worked with" and that there was nothing improper about them.
"If you open the net you will find the same pictures, it's not pictures of naked women or anything -- they are all normal pictures," she said. "There is no issue at all."
Activists have posted scans online purporting to be the original trial documents
. CNN cannot verify the authenticity of the documents, but they appear to match Human Rights Watch's reporting.
Fayadh, a Saudi-born Palestinian, has been a prominent figure in Saudi Arabia's nascent contemporary art scene, where he was involved in the Saudi-British art group Edge of Arabia
and curated its exhibit for the 2013 Venice Biennale.
Saudi Arabia has faced increasing criticism for the punishments handed down by its judicial system, including beheadings, crucifixions and floggings. Raif Badawi, a liberal Saudi blogger
, was handed a 10-year prison term and ordered to be lashed 1,000 times last year for "insulting Islam."