By Julie Gordon

VANCOUVER (Reuters) - A Canadian judge freed a couple found guilty of planting homemade bombs at a crowded Canada Day holiday party in 2013, saying on Friday the "unsophisticated" pair were entrapped by police who themselves broke the law in their sting operation.

But the pair were quickly re-arrested under a peace bond, one of their lawyers said, a type of order related to the possibility that they may commit a terrorism offence.

The peace bond would make the couple subject to release conditions for up to twelve months, lawyer Mark Jette told Reuters, adding the couple had since been released on bail and would be challenging the order.

Earlier on Friday, British Columbia Supreme Court Justice Catherine Bruce ruled the RCMP manipulated the "unsophisticated" couple into carrying out a plot, saying that they did not have the mental capacity to plan on their own.

It was the first time in Canada that entrapment had been used successfully as a defense in a case involving terrorism charges.

John Nuttall and Amanda Korody were arrested in 2013, just hours after they dropped off homemade pressure cooker bombs filled with nuts, bolts and rusty nails on the steps of the legislature in Victoria, the provincial capital, ahead of national day celebrations.

The couple was found guilty of numerous terrorism-related charges last year, after a months-long undercover sting operation by the RCMP. Their conviction was not registered as defense lawyers argued that police had entrapped their clients.

Lawyers for the pair did not immediately respond to calls from Reuters.

The argument hinged on the fact that an undercover officer befriended the couple, encouraging them to drop more "grandiose" terror plot ideas to focus on explosive pressure cookers, actively removing all obstacles to ensure the plan went ahead.

Nuttall and Korody were also led to believe that if they backed out of the plan, they would be killed, according to the ruling.

Bruce had stayed proceedings against the two, calling them "foot soldiers" in a plot led by the undercover officer.

"The world has enough terrorists. We do not need the police to create more out of marginalized people," she said.

Canadian prosecutors, who are appealing the ruling, had argued police acted in an "innovative and effective" way.

Three previous attempts to claim entrapment in terrorism proceedings have failed, including two tied to a 2006 Toronto plot to attack federal buildings and behead then-Prime Minister Stephen Harper.

Nuttall and Korody are Canadian-born citizens who lived on government support in a basement apartment in a Vancouver suburb. The pair had addiction problems, according to court documents, with Nuttall describing himself as a self-styled "Muslim Punk" on his website and writing songs about his love for Satan.

(Reporting by Julie Gordon; editing by Jeffrey Hodgson, G Crosse)