The woman was initially given a suspended sentence and banned from working as a police officer.
But on Thursday the Svea Court of Appeal in Stockholm ruled against her conviction, saying it was unable to refute the woman's claim that she acted in self-defense because she thought the man was going to attack her.
A video of the police officer – who hasn't been named by Swedish media – went viral in 2013, after it was published by Swedish newspaper Dagens Nyheter.
Filmed by a witness, it shows the woman hitting the man at least 10 times as her dog tried to bite and scratch him.
The film was used as evidence in court and the case sparked an intense debate in Sweden about the use of force by the country's police officers.
During the appeal process, the woman told the court:
"I saw how his whole facial expression changed, how he covered his jaws. That I understood to mean he would be flying at me. I have seen others with the same face completely explode".
The woman said the man had already attacked several people in the area and smashed a pane of glass in a door.
The Svea Court of Appeal said it took into account the fact that that the police officer was alone at the scene and that the man had appeared violent and unstable ahead of the attack. It also noted that he had repeatedly refused to do as the officer asked.
The man was so drunk he did not remember much of what happened, but was later convicted of assault, criminal damage and a minor drug offense.