The appeals court in Paris on Wednesday went against the advice of prosecutors who had recommended that it transfer Jean-Francois Lefort who was arrested in December at his home in Bayonne near Bordeaux in southwestern France.
The 34-year-old Lefort is the subject of a European arrest warrant issued by an anti-terrorist judge in Madrid, one of the first instances of this new mechanism being used in the fight against the separatist group instead of a traditional extradition request.
But French judges said they based their decision on the fact that Madrid wanted to question Lefort over activities he conducted on French soil as the country's main representative of the Askatasuna group.
France is holding Lefort on a separate suspicion of having provided shelter to Mikel Albisu Iriarte, also known as Mikel Antza, whom Spanish authorities allege to have been ETA's political chief since 1993.
Lefort is under official investigation for "belonging to an organised group in relation with a terrorist undertaking".
ETA, classed as a terrorist group by the European Union and the United States, has killed more than 800 people since 1968 to press its demand for a Basque state carved out of northern Spain and southwestern France.
Zapatero has adopted a soft
approach towards the Basques
Meanwhile, in Madrid, the Basque premier brought forward regional elections on Wednesday to revive his stalled plan for virtual independence from Spain.
A day after the Spanish parliament rejected Juan Jose Ibarretxe's plan for "free association" with Spain, the Basque leader called elections for 17 April and vowed to call a referendum on his proposal if he wins.
Such a referendum, without the blessing of Spain's parliament, would be a major challenge for Spanish Prime Minister Jose Luis Rodriguez Zapatero who has adopted a conciliatory approach towards the Basques.