Pope John Paul's medical condition is "evolving positively" and his breathing problems have receded, but the 84-year-old pontiff is still expected to stay in hospital for a week.
In its latest health bulletin on Thursday, the Vatican said that the Pope has not suffered a repeat of the breathing spasms, "which was the reason for his urgent hospitalization."
It said that the laryngotracheitis â an inflammation of the trachea, a breathing passage â has regressed.
"The Holy Father's general condition and his respiratory condition are evolving positively," the statement said.
Papal spokesman Joaquin Navarro-Valls earlier said that the Pope rested well over night, his second night in the hospital since he was rushed there Tuesday suffering respiratory problems brought on by the flu.
He said although doctors will decide how long the Pope remains in hospital, he believes it will be another seven days before he is released.
Angelo Cardinal Sodano, the Vatican secretary of state, told Italian media Wednesday night that the Pope was "recovering well," adding that he expected the situation to improve in a few days.
Cardinal Javier Lozano Barragan, head of the Vatican's health care office, said the extra days in hospital will allow doctors to be on guard "for any complications." Life-threatening pneumonia can result in people elderly and frail.
The Vatican said the Pope had suffered spasms of the larynx, making it difficult for him to breathe, and had an inflamed windpipe.
Sodano said the Pope's breathing problems could have been handled at the Vatican, but the Pope "as everybody, entrusts himself to the doctors" and it was decided to hospitalize him.
But Italian media, citing hospital sources, said doctors decided to rush the Pope to hospital because his coughing was cutting off his oxygen.
Pope John Paul II has been in poor health for many years, but he has seldom let that get in the way of his official duties. He regularly says mass and greets pilgrims who travel to the Vatican.
The Pope has Parkinson's disease, a degenerative neurological disorder. Observers had long suspected it as the cause of his trembling hands and slurred speech.
He had a tumour removed from his intestines in 1992, has knee and hip problems and also suffers from the effects of being shot in an assassination attempt in 1981.