|The case prompted widespread protests across Pakistan, with demonstrators calling for Davis to be hanged [REUTERS]
Raymond Davis, a CIA contractor accused of murdering two men in Lahore, Pakistan, has been released after the families to the two men he killed were given "blood money" and the case was dropped, Pakistani officials said.
Hillary Clinton, the US secretary of state, however, denied that the United States paid any compensation.
While Davis, who had earlier admitted to the killings but said he was acting in "self-defence", was indicted for the murders earlier on Wednesday, Rana Sanaullah, the Punjab law minister, said he was immediately pardoned by the families of the victims in exchange for compensation or "blood money".
The practice of pardoning those accused of murder under such an arrangement is permitted under Pakistani law.
Kamal Hyder, Al Jazeera's correspondent in Peshawar, said the families' lawyer had claimed they were forced to sign the agreement over the blood money, but none of the family members have spoken out so far.
"There is likely to be a public reaction, despite the fact that the court had moved according to the law of the land," he said.
The amount of money agreed to has not been made clear.
Davis had been arrested on January 27, after having killed the two men on a street in Lahore. He said that the two men were attempting to rob him, and that he acted in self-defence.
Chaudhry Mushtaq, superintendent at Kot Lakhpat jail, said Davis left the jail with US consulate officials after the hearing.
Speaking to reporters in Cairo, US secretary of state Clinton denied that the US government had paid any "compensation".
"The United States did not pay any compensation." When she was asked who did pay, she replied: "You will have to ask the families."
She also refused to say whether the Pakistani government had paid, saying that that question should be directed to the Pakistani authorities.
Earlier, Clinton had expressed gratitude to the families for having allowed Davis to leave the country.
"The families of the victims of the January 27th incident pardoned Mr Davis and we are very grateful for their decision. We appreciate the actions that they took that enabled Mr Davis to leave Pakistan and head back home," she said.
"We have communicated our strong support for the relationship between Pakistan and the United States which we consider to be of strategic importance and are looking forward to continuing to strengthen it based on mutual respect and common interest," Clinton said.
Meanwhile, George Little, the CIA's spokesman, told AFP via email that the CIA and the Inter Services Intelligence Directorate, Pakistan's spy agency, had a "healthy partnership".
"The agency and our Pakistani counterparts have had a strong relationship for years. When issues arise, it's our standing practice to work through them. That's the sign of a healthy partnership - one that's vital to both countries, especially as we face a common set of terrorist enemies."
The row over Davis had led to questions regarding whether it would strain relations between the two agencies.
Criticism of Obama administration
Patty Culhane, Al Jazeera's correspondent in Washington, said there had been a lot of criticism about how the Obama administration had handled the case since the beginning.
The United States has consistently insisted that Davis had diplomatic immunity and had demanded that the Pakistani authorities release him immediately. The case has caused a diplomatic row between the countries, with the Pakistani government, under pressure from the public not to allow Davis immunity, leaving the matter up to the courts.
Pakistani officials had earlier suggested that the payment of "blood money" was the best solution. Lawyers for the victims however suggested that they were forced to sign the deal.
"We were put in detention for four hours and not allowed to meet our clients who were called by authorities to the court," Asad Manzoor Butt, a lawyer for the family of one of victims told Reuters.
Sanaullah said Davis was formally indicted on murder charges before members of the two victims' families were taken into the court, where they signed papers formally forgiving him in exchange for an undisclosed sum of money.
Judges then acquitted him on all charges, he said.