The court acquitted Ahmed Belbasha, 45, who was delivered to Algeria by the U.S. last year, a judicial source said.
Algeria's prosecution authorities had accused Belbasha of joining a "terrorist organization" active overseas.
The source said evidence submitted by prosecutors had been insufficient to secure a conviction.
Prosecutors had called for sentencing Belbasha, who was arrested by the U.S. army in Afghanistan in 2001 before being taken to Guantanamo Bay, to 12 years in prison.
In 2007, a U.S. Federal Court acquitted Belbasha of terrorism charges, but he nevertheless refused to be deported back to Algeria for fear of torture.
In 2013, however, the U.S. authorities repatriated Belbasha after assuring him that he would receive a fair trial in the North African country.