Isa, a former menteri besar of Negeri Sembilan, was suspended from Umno in 2004 after being found guilty of practicing money politics.
Speaking to students in Paris, Najib said: "The question here is whether he deserved a second chance or not."
"In our system, even a criminal gets a second chance and can contest the post after serving his or her punishment."
"This (Isa's offence) is only a technical matter in the party and he has already paid for his deeds," he was quoted as saying by Bernama.
Furthermore, he added that Isa was only contesting a state assembly seat and not a minister or menteri besar's seat.
Popular among locals
Najib, who is also Umno president, explained that the party chose Isa to contest in the Oct 11 by-election because he is popular among the locals and is capable of winning.
He said the veteran politician had remained faithful to the party and served the people well, despite being punished.
The premier, who is currently on a four-day official visit to France, explained that Isa's offence was only a technical matter within the party and did not involve the judiciary of the country.
The Bagan Pinang seat fell vacant after the death of Umno incumbent Azman Mohammad Noor on Sept 4.
The contest would see a straight fight between Isa, 59, and Negeri Sembilan PAS commissioner Zulkefly Mohamad Omar, 45.
Previously, Umno veterans like former president Dr Mahathir Mohamad and ex-vice-president Tengku Razaleigh Hamzah opposed the idea of fielding Isa on the grounds that he was a 'tainted' leader.