Jean-Pierre Bemba, pictured in 2016, had been sentenced to a total of 18 years in prison.
"Mr Bemba can not be held criminally responsible for the crimes committed by MLC troops during the Central African Republic operation", she said, reading the ruling of a 5-judge appeal panel.
The Appeals Chamber also dismissed as moot the appeals that Mr Bemba and the Prosecutor had brought against the sentence Trial Chamber III had imposed.
However, appeal Judge Van den Wyngaert said the judges in the original case had "ignored significant testimonial evidence that Bemba's ability to investigate and punish crimes in auto was limited". "More than 5,200 survivors of Bemba's atrocities participated in the ICC proceedings - for these fearless individuals, as well as thousands of other victims in vehicle, the pursuit of truth, justice and reparations will continue".
The 55 year old who fled DRC after losing a presidential poll was arrested in Belgium in 2008.
He was not released immediately on Friday because he has also been convicted of witness tampering, and an appeals judgment in that case is still pending. She urged that trial panel to quickly decide whether he should be set free.
Judge Christine Van den Wijngaert said Bemba, once the leader of Congo's main opposition party, could not be held responsible for crimes carried out by troops under his control in Central African Republic (CAR) in 2002-2003.
"There's not even any question over it", Mende told Reuters by telephone.
Appeal judges also said he had been "erroneously" convicted for specific criminal acts.
The judges said they had found an "apparent discrepancy between the limited number of crimes within the case's scope for which Mr Bemba was held responsible" compared to the assessment of his case.
The message "to warlords seems to be: when you're not at the scene, let your troops commit the worst crimes and worst abominations, then say you had nothing to do with it, and we won't condemn you".
It remains to be seen what Bemba will do once he is released.
Prominent Congolese opposition leader Felix Tshisekedi, speaking at an Atlantic Council event last month in Washington, said Bemba's Movement for the Liberation of Congo was part of a new political alliance against President Joseph Kabila.