Dragomir Abazovic, who was arrested on 5 January after a gun battle with European Union peacekeepers, was charged two years ago with war crimes from the 1992-95 Bosnian war, during which he served in the Bosnian Serb army.
Bosnian officials said Abazovic was freed because he had been arrested on a four-year-old warrant issued by a local court which was no longer valid.
A new warrant should have been issued by the court which took over jurisdiction for war crimes last year.
A court spokesman confirmed that no proposal for detention has been submitted, but he could not say whether prosecutors had failed to act on time or lacked sufficient evidence.
The original case against Abazovic was approved by the UN war crimes tribunal in The Hague, which certified that Bosnia now has the judicial capacity to handle lower-level war crimes cases.
Lieutenant-Colonel Simon Millar, the spokesman for EUFOR, said the cancellation of the original detention warrant was a matter for Bosnian authorities but added this would not deter EUFOR from future arrest attempts.
It was not clear whether Abazovic had returned to his home or when any new attempt would be made to arrest him.