Dominic Bird, from Perth, was arrested in March 2012 at a cafe near his apartment in Kuala Lumpur and accused of trying to supply an undercover police officer with 167 grams of methamphetamine - an amount that carries a mandatory death sentence.
He was acquitted after the case against the 34-year-old fell apart amid allegations of corruption on the part of the prosecution's star witness - Inspector Luther Nurjib - and Mr Bird was set free in September 2013.
Mr Bird was just five minutes from freedom and waiting to board a flight back to Australia when he was re-arrested at the boarding gate of Kuala Lumpur's international airport following an 11th-hour appeal by prosecutors.
But the Malaysian Court of Appeal in Putrajaya on Wednesday rejected the prosecution's bid to have the High Court's decision overturned, with Mr Bird again set free, subsequently beating the death penalty for a second time.
Prosecutor Awang Armadajaya told AAP he would consult with his superiors at the Attorney-General's office about whether or not to pursue Mr Bird.
The prosecution has 14 days to appeal, and Mr Awang said he may seek an injunction to prevent Mr Bird from leaving Malaysia while the Attorney-General's office considers its options.
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