An American CIA contractor detained on suspicion of murder was released on Wednesday after families of the two Pakistanis he killed were given "blood money" and the case was dropped, Pakistani officials said.
The killings and detention of Raymond Allen Davis had strained ties between Pakistan and the United States and added to anti-America sentiment.
Punjab Law Minister Rana Sanaullah said Davis was charged with murder Wednesday but then immediately pardoned by the families of the victims in exchange for compensation or "blood money", as is permitted under Pakistani law.
Davis was arrested on Jan. 27 after killing two Pakistanis in what he said was self-defense.
Chaudhry Mushtaq, superintendent at Kot Lakhpat jail, said Davis left the jail with U.S. consulate officials after the hearing.
U.S. officials were not available for comment.
The United States had insisted that Davis had diplomatic immunity and demanded Pakistan free him immediately.
Pakistani officials, faced with criticism by Islamist parties and members of the public, had refused to state clearly whether he had immunity.
Pakistani officials had suggested that the payment of "blood money" was the best solution and in recent days speculation mounted that such a deal was in the works.
Sanaullah said Davis was formally indicted on murder charges before members of the two slain mens' 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.