Prosecutors "failed to prove beyond reasonable doubt" that Sefer Halilovic was responsible for the killings, presiding judge Liu Daqun said on Wednesday.
The prosecution had demanded a sentence of 10 years in prison for the 53-year-old, the highest-ranking Bosnian Muslim to appear before the International Criminal Tribunal for the former Yugoslavia (ICTY), based in The Hague.
Halilovic was accused of so-called command responsibility for the killings of 62 Bosnian Croat civilians and a prisoner of war by troops under his command in the villages of Uzdol and Grabovica in central Bosnia in 1993.
It took place when Halilovic was the chief of staff of the Bosnian army and in command of operation "Neretva 93", aimed at lifting the blockade of Mostar by Bosnian Croat forces, prosecutors said.
The indictment alleged that Halilovic personally ordered the deployment of two Bosnian army units from Sarajevo with "notorious reputations for being criminal and uncontrolled in behaviour".
The troops later killed 33 Bosnian Croat civilians in Grabovica on 9 September, 1993 and another 28 civilians and one prisoner of war in Uzdol five days later.
According to the prosecution, Halilovic did nothing to prevent the crimes nor did he punish the perpetrators as demanded by international humanitarian law.
Halilovic, who surrendered voluntarily to the ICTY in The Hague in September 2001, had pleaded not guilty, with his lawyers insisting that he did not have "effective control" over the troops.
"Halilovic did not have powers of command," said one of his lawyers, Peter Morrissey.
The bloody 1992-95 war in Bosnia mainly pitted Bosnian Muslims against the Bosnian Serbs, but for a period also saw vicious fighting between Bosnian Muslims and Bosnian Croats.
In all, over 200,000 people died during the conflict.