According to investigators he directly ordered attacks against the East Timorese population.
A special tribunal in Jakarta found him guilty of human rights violations but on Friday the court acquitted him, citing a lack of evidence
On Tuesday, the National Mandate party named him as its candidate for West Timor in next April's elections.
Human rights groups have criticised Indonesia's efforts to bring those responsible for the bloodshed in East Timor to justice.
Asmara Nababan, a human rights investigator who was part of a team that looked into the violence in East Timor, said the acquittal showed a lack of justice in Indonesia.
"This is high time for international community to look at the recommendations of the team of experts set up by secretary-general to have an international tribunal," he said.
Seventeen other men who were indicted by Jakarta prosecutors, were also acquitted and set free.
Before his release, Guterres received journalists in prison where he portrayed himself as an Indonesian nationalist.
Supporters hail him for fighting for Indonesian unity and blame the international community for his imprisonment.
Calling himself "a true child of Indonesia", Guterres said he did not mind if the case was brought before an international court, but urged everyone to respect Indonesian law.
The United Nations estimates about 1,000 people were killed in the 1999 violence but Indonesian officials say only about 100 people died.
A truth commission set up by the two countries in 2005 is still investigating the bloody events but it does not have any power to prosecute, and rights activists say it only serves to whitewash the crimes.
Critics say the chances of an international court hearing are slim because tiny East Timor, which Indonesia annexed and ruled for 24 years, wants to keep the peace with its much bigger and more powerful neighbour.