David Eastman will be freed from prison while prosecutors decide whether he should face a new trial for the 1989 murder of Australian Federal Police assistant commissioner Colin Winchester.
The full bench of the ACT Supreme Court on Friday quashed Eastman's original conviction and recommended he be retried.
But that decision will be left to the ACT Director of Public Prosecutions.
Eastman, 68, is serving a life sentence after being convicted in 1996 of Mr Winchester's murder.
The court agreed Eastman should not remain in jail and ordered his release on bail subject to a number of conditions.
They include him residing at a nominated address and agreeing not to contact a list of 300 people who may be involved in a new trial.
Prosecutors did not oppose the bail application.
In delivering the court's decision on Friday, Justice Steven Rares said there had been a substantial failure at Eastman's original trial.
However, there remained a strong circumstantial case against Eastman and a new trial would not be unfair, he said.
"The community has a vital interest in ensuring that a person against whom a strong circumstantial case for murder of a very senior police officer exists does not escape having a jury decide whether or not he is guilty of that crime," he said.
Prosecutors have been told to consider any new evidence unearthed by an earlier judicial inquiry into the case.
They have also been asked to consider whether a retrial would be fair and in the public interest.
Mr Winchester, the most senior policeman to be murdered in Australia, was shot dead at his Canberra home on the night of January 10, 1989.
The killer calmly fired two shots into the policeman's head at close range as Mr Winchester sat in his car.
Although there was speculation it was an organised crime hit, police charged Eastman, a former Treasury official with a personality disorder and a grievance against police.
Earlier this year, an inquiry into the trial concluded there had been a miscarriage of justice and recommended Eastman be freed.
Outside the court, head of the ACT Legal Aid Commission John Boersig said Eastman was relieved to be exonerated and gain his freedom.
"Mr Eastman is looking forward to resuming an active and normal life including seeking employment," he told reporters.
On legal advice, Eastman would be making no further comment until the matter of a retrial was decided.
Eastman supporter Terry O'Donnell said the case was now back to 1992 with just one more step.
"I understand the evidence pretty thoroughly and I believe there are significant difficulties in a retrial," he said.
Mr O'Donnell said critical witnesses who were never cross-examined at the original trial had since died.
"These are difficulties that indicate a fair trial would be very difficult."
The ACT Victims of Crime Commissioner John Hinchey said the court's decision was distressing for Mr Winchester's family.
"This is another day of mourning for the Winchester family," he told ABC radio, adding they didn't want to speak publicly on the decision.
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