Ellen 'Nellie' Copson was jailed for 14 days on January 27 this year after Droitwich magistrates ruled she had 'wilfully refused' to pay rates on a dilapidated, vacant shop she inherited from her brother several years ago.
After spending two days in jail, Miss Copson, of Droitwich Spa, was released on 29 January this year when bail was granted by a high court judge pending the review application.
Describing it as an 'upsetting' case, Mr Justice Tucker granted permission to Miss Copson's lawyers to challenge the legality of the magistrates' decision to jail her.
A warrant was issued for the arrest of Miss Copson, who lives above the shop premises, on 27 January this year.
Mr Justice Tucker said: 'So far as the justices are concerned, I grant leave for a judicial review as it seems to me that there is an arguable case.'
But the judge refused to grant permission for Miss Copson to challenge Wychavon DC's original decision to take her before the magistrates.
He said he was 'fortified' in his decision by an undertaking given by Clive Moys, representing the council, that it would no longer pursue the£2,700-debt that had landed her in jail.
The judge had earlier told Mr Moys: 'We can't have an 81-year-old woman going to prison. I am not going to take any course of action which involves this lady going back to prison.'
At the outset of the hearing, Mr Justice Tucker told Ian Wise, who appeared for Miss Copson, she must have found her imprisonment 'very upsetting.'
Mr Wise, replied: 'My instructions are that the two days she spent in prison were the worst two days of her life.'
He told the court: 'She inherited the property from her brother four or five years ago.
'The property is in a very dilapidated condition, she also inherited a small sum with which to carry out works to the property and pay various bills.'
The adjoining property in Droitwich High Street is owned by the council, which has spend more than£1m renovating it.
Mr Wise said: 'We have a property here which is dilapidated for which Miss Copson receives no remuneration.'
He told the judge there had been demonstration in the centre of Droitwich following the jailing of Miss Copson, who did her time in Brockhill Women's Prison, near Redditch.
Mr Wise referred to a recent decision by home secretary Jack Straw not to prosecute an 81-year-old woman for spying.
'When you consider this sort of public policy background, it is truly astonishing that Miss Copson should have found herself in prison for a civil debt.'
Mr Moys had earlier told the court that a 'hail and hearty' Miss Copson was 'the author of her own misfortune'.
'It is not a case of could not pay, it is a case of would not pay. The lady has defied this council to send her to prison,' he said.
Mr Moys gave a formal undertaking that the council would take no further steps to recover the£2,700 she already owed - but that did not apply to any further arrears she built up in the future.
No date was given for the full hearing of Miss Copson's judicial review challenge.