Mullah Krekar, 47, was freed on Tuesday but police are continuing to investigate his links to Ansar al-Islam, which Washington suspects is behind some attacks on US troops in Iraq and has ties to al-Qaida.
He says he founded and led Ansar al-Islam until he stepped down in May 2002.
"We are demanding compensation from the Norwegian state for unjustified legal harassment," Krekar's lawyer, Brynjar Meling, told Reuters. Krekar has spent about nine weeks in custody - two weeks in early 2003 and seven weeks in 2004.
Meling declined to say how much Krekar would demand.
But Norwegian police say they are still investigating Krekar on suspicion of conspiracy, attempted murder of political rivals in Iraq and inciting criminal activity. They suspect Krekar has been involved in the group from the Norwegian capital.
"The investigation is not yet completed," said Erling Grimstad, deputy chief of Norway's Economic Crime Unit. He said Norway's chief prosecutor would decide whether to press new charges.
Meling has several times said the investigation into Krekar's activities was politically motivated and that Norwegian police were acting under pressure from NATO ally the United States and Krekar's political opponents in Iraq, the Patriotic Union of Kurdistan (PUK).
Meling said Krekar was released this week because of allegations Iraqi witnesses gave evidence against Krekar only after being tortured by the PUK.
"They had no evidence against me," Krekar told Reuters on Tuesday.
Krekar, whose real name is Najm al-Din Faraj Ahmad, has a wife and children in Norway. He is fighting an expulsion order from the Nordic nation.