The Pentagon said on Tuesday that Habib and another four Britons held as "enemy combatants" at the US military base in Cuba would be transferred to their respective governments without facing US charges.
Habib's Australian-based lawyer Stephen Hopper said the decision "vindicates what we have said all the time, that he is innocent and has been unlawfully detained in Guantanamo since his arrest in Pakistan".
"He was tortured, he was abused, now he's been vindicated," he added. 
Like his British counterparts, Hopper said his client would consider seeking compensation from the US and Australia over his detention. 
Detention details

A former Sydney taxi driver, Habib was arrested on a trip to Pakistan in October 2001 and held in Cairo before being transferred to Guantanamo Bay in May 2002. 

"He won't face charges in relation to what we know at the moment but if further evidence came to light, I wouldn't preclude it"

Philip Ruddock,
Australian attorney-general

In Egypt, he was allegedly tortured by water and electrodes during interrogation, the Australian Broadcasting Corporation said last week, citing previously sealed court documents it had obtained.
His lawyers say that at the time of his arrest he was assessing Muslim schools for his four children, prior to relocating his family to Pakistan.
The Pentagon alleges he admitted working with al-Qaida and had prior knowledge of the 11 September 2001 attacks on the United States. However he was never formally charged or tried.
Family reaction

Habib's wife Maha said she initially disbelieved Australian officials who phoned to say her husband was being released but was slowly accepting that her family's ordeal was coming to an end.
She branded the Australian government "a disgrace" for not doing enough to secure her husband's release. "It's been very hard for the family," she said.
Prime Minister John Howard defended his government's actions and said he would not offer Habib an apology or any compensation.

He said the US was entitled to detain Habib, although he was disappointed the decision to release him took so long.
Australia's Attorney-General Philip Ruddock said when Habib returned to Australia he would not be under house arrest but could not leave the country and would face close scrutiny from intelligence services.
"He won't face charges in relation to what we know at the moment but if further evidence came to light, I wouldn't preclude it," he said.