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Malik related to me that he had heard that Fadala ibn Ubayd al- Ansari who was one of the companions of the Messenger of Allah, may Allah bless him and grant him peace, was asked whether it was permissible for a man who had to free a slave to free an illegitimate child. He said, "Yes, That will give satisfaction for him."
وَحَدَّثَنِي مَالِكٌ، أَنَّهُ بَلَغَهُ عَنْ فَضَالَةَ بْنِ عُبَيْدٍ الأَنْصَارِيِّ، وَكَانَ، مِنْ أَصْحَابِ رَسُولِ اللَّهِ صلى الله عليه وسلم أَنَّهُ سُئِلَ عَنِ الرَّجُلِ تَكُونُ عَلَيْهِ رَقَبَةٌ هَلْ يَجُوزُ لَهُ أَنْ يُعْتِقَ وَلَدَ زِنًا قَالَ نَعَمْ ذَلِكَ يُجْزِئُ عَنْهُ ‏.‏

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References

• Muwatta Imam Malik, Book of Setting Free and Wala', Hadith 11