The court threw out the conviction of the 35-year-old Milic Martinovic because several witnesses had identified him despite only seeing him in photographs.
The ruling overturns a verdict from January, when a district court convicted Martinovic of aggravated crimes against humanity. The guilty verdict included murder, attempted murder and aggravated arson in connection with the massacre in the Kosovar village Cuska.
He had been arrested in April 2010 and held since then.
But the Court of Appeal (Svea hovrätt) threw out the conviction.
“The appeals court finds that there are doubts and risks regarding the identifications,” it said in a statement.
“None of the villagers knew this person, and the identifications were made several years after the events,” the court said in a statement.
“Furthermore, pictures of the suspect had appeared in the media for a while before the identifications,” it added.
“These photographs, which were taken the year before the massacre, show him in uniform, sometimes in the company of people known to be involved in the Cuska events,” it said.
The court acknowledged that Martinovic’s phoned had been tapped in the lead up to several people being arrested in Serbia in 2010 on suspicion that they were involved in the Cuska massacre.
The wiretaps showed that Martinovic knew about the massacre and was worried about the investigation, it added.
“But this court does not think that the wiretap proves that he took part in the massacre,” it said.
Martinovic insisted he was innocent during his trial. His lawyer, Bertil Schultz, told news agency TT that Martinovic would be seeking compensation for his unusually long detention.
The verdict overturns an earlier ruling by a lower court. The Stockholm district court ruled that Martinovic was one of the special PJP police force members who took a large number of people captive in Cuska on May 14, 1999.
While the court did not find evidence that Martinovic had personally killed anyone, it concluded that he stood guard as his comrades shot civilians and forced residents to hand over gold and other valuables.