Witnesses in Gunnebo in Västervik say the child initially fell down one floor and landed on a window sill, with the resulting thud heard by others living in the apartment block.
A neighbour who had spotted the child climbing out of the window ran into the courtyard and managed to catch the boy as he fell.
The child was spared from landing on a concrete staircase after a seven metre drop.
Police were called to the scene at around 8pm with press spokesperson Calle Persson describing the rescue as “a heroic effort”.
“He almost certainly saved the boy’s life and prevented him from sustaining serious injuries,” he told Swedish tabloid Expressen.
The neighbour is understood to be in is 50s but by Monday morning had not been named in the Swedish media, despite news of the dramatic rescue being among the most-read stories in Sweden.
Alexander Haitin, another neighbour, told Expressen that he had rushed out into the courtyard after seeing the man cradling the boy in his arms.
“The boy was very scared, but he looked okay. He could stand on his own, but complained that he was a little hurt. If he had fallen straight down, I do not know what would have happened,” he said.
Hilmo Ibesevic, 56, who also lives in the neighbourhood, said he had watched an ambulance and a police car arriving and had assumed the emergency services were on the scene because either “an old person had been hit by something” or because of “some kind of brawl” in the area.
“I never imagined something like this would have happened,” he said.