Irina Gagloeva, a spokeswoman for the South Ossetian government, said 35 of the 38 peacekeepers were turned over to Georgian officials at a checkpoint in a village just south of the South Ossetian capital, Tskhinvali, at midday.
Gagloeva said three peacekeepers remain in custody, accused of unspecified "grave crimes."
But Mikheil Kebadze, the commander of the Georgian peacekeeping battalion in South Ossetia, told RFE/RL today that 36 peacekeepers were captured initially and that all have been released:
"The first group of 32 were handed over to us, while four soldiers still remained hostage," Kebadze said. "But five minutes later, they gave us those four, as well. So, all 36 of the detained soldiers were released. [Minister of Internal Affairs Irakli] Okruashvili was waiting for them. They were put into buses and driven away. To where, I don't know. The soldiers were released without any conditions, as had been agreed."
The Interior Ministry troops were seized when armed men entered the South Ossetian village of Vanati -- east of Tskhinvali and populated by ethnic Georgians -- and disarmed members of a peacekeeping force stationed there.
The capture of the troops and videotape of them -- shown on Russian television -- kneeling in front of South Ossetian soldiers have further raised tensions in the region.
Since his election in January, Georgian President Mikheil Saakashvili has secured the removal of the leader of another fractious region, Ajara, and has now set his sights on restoring central rule in both South Ossetia and Abkhazia, a breakaway region on the Black Sea.
South Ossetia declared independence from Tbilisi after it fought a short civil war with Russian support in the early 1990s.
Tensions had already been high since Georgia sent troops to protect antismuggling checkpoints in South Ossetia last month. The atmosphere worsened on Wednesday when Georgian troops seized a convoy they said was carrying rocket launchers intended for separatists.
Russia said the weapons were meant for its peacekeeping troops.
Saakashvili today cut short a state visit to Iran and returned to Tbilisi, where he headed into a meeting with his security ministers.
Georgian Prime Minister Zurab Zhvania had earlier described the raid on Vanati as an "insolent provocation implemented personally by Ossetian separatist leader Eduard Kokoity."
Kokoity's chief of staff, Eduard Kotayev, told RFE/RL on Thursday that those captured were not members of the peacekeeping force and that they had been captured in a zone manned by Russian peacekeepers.
But the secretary of Georgia's National Security Council, Gela Bezhuashvili, said the capture of the Georgian peacekeepers was meant to preserve Kokoity's authority.
"Kokoity's illegal government is losing support among its own people because [Kokoity] is acting against his own people," Bezhuashvili said. "He is making his own people hostage of his actions and in that way seeks to preserve his own authority."
Aleksandr Yakovenko, a spokesman for the Russian Foreign Ministry, on 8 July urged both sides to show maximum restraint.
In Washington on Thursday, State Department spokesman Richard Boucher called for the soldiers' immediate release and said the United States condemned the incident.
"We are encouraging all sides to work towards the immediate release of the hostages and to take steps to reduce tensions," Boucher said. "We think that intensified dialogue is the best way to a peaceful solution that ensures Georgia's territorial integrity and avoids further violence."
Moscow aligns itself with the international view that both South Ossetia and Abkhazia are part of Georgian territory. But it has often backed the two provinces in disputes with Tbilisi and has granted many of their people Russian citizenship.
(compiled using contributions from RFE/RL's Georgian Service and wire services)