Judges on Tuesday said that prosecutors had failed to satisfy the burden of proof over the accusations, adding their decision could be reversed on appeal.
About 3,000 people were killed in the West African nation in a violent standoff during 2010 and 2011 when the 73-year-old refused to accept defeat in an election against his bitter rival and now Ivorian President Alassane Ouattara.
The ICC also ordered the release of Charles Ble Goude, 47, dubbed Gbagbo’s “Street General”, who stood trial with his former boss.
Gbagbo and Ble Goude stood trial on four counts of crimes against humanity for murder, rape, persecution and other inhumane acts committed by pro-Gbagbo forces in the aftermath of the disputed 2010 polls.
After spending seven years in prison, Gbagbo will follow in the footsteps of his wife Simone Gbagbo, who walked away from a 20-year jail term in Ivory Coast in August when she was granted amnesty by Ouattara after seven years in prison.
Tensions are high in the country where about 200 victims gathered on Monday in Abidjan to urge the ICC to keep Gbagbo in jail.
“We have come to officially and publicly oppose any release of Laurent Gbagbo – the ICC is acting as if the victims didn’t exist,” Issiaka Diaby, head of a group which represents 8,000 victims, told the AFP news agency, before the ICC decision.
“If Laurent Gbagbo is released, we victims will not see justice,” added Karim Coulibaly, 43, whose arm was amputated after he was shot during the violence.
“I was a driver but now I am unemployed. I’m not against reconciliation but first you have to look after the victims.”
The ICC was set up in 2002 for trials into war crimes and crimes against humanity. So far, most of its cases have involved African countries.
Previous attempts at the ICC to try top politicians for crimes committed by subordinates or followers have all run into serious difficulties.
In 2014, the ICC’s chief prosecutor, Fatou Bensouda, dropped crimes against humanity charges against Kenyan President Uhuru Kenyatta.
Last year, former Congolese Vice President Jean-Pierre Bemba was acquitted on appeal for crimes allegedly committed by his militia in the Central African Republic in 2002-2003.
“If Gbagbo walks out free, the ICC should rethink what it could possibly achieve,” Thijs Bouwknegt, an international law specialist, told AFP.