Asia Bibi appeared to be in state of disbelief after hearing the decision from her lawyer.
"I can't believe what I am hearing, will I go out now? Will they let me out, really?" Ms Bibi said from prison after the ruling.
"I just don't know what to say, I am very happy, I can't believe it."
The allegations against Asia Bibi date back to 2009, when she was working in a field and was asked to fetch water.
Muslim women she was labouring with allegedly objected, saying that as a non-Muslim she was unfit to touch the water bowl.
The women went to a local cleric and accused Ms Bibi of blasphemy against the Prophet Mohammed, a charge punishable by death under colonial-era legislation.
Supporters of Islamist political party Tehreek-e-Labaik (TLP), which was founded to support blasphemy laws, immediately condemned the decision to overturn Ms Bibi's conviction and blocked roads in major cities, pelting police with stones in the eastern city of Lahore.
The TLP's leadership called for the death of Nasif, the chief justice, and two other judges on the panel.
The party also called for the ousting of the government of new Prime Minister Imran Khan.
Ms Bibi's lawyer on Wednesday called the court ruling "great news" for Pakistan.
"Asia Bibi has finally been served justice," lawyer Saiful Mulook said. "Pakistan’s Supreme Court must be appreciated that it upheld the law of the land and didn't succumb to any pressure."
Street protests were spreading by mid-afternoon, paralysing parts of Islamabad, Lahore and other cities.
Insulting Islam's prophet is punishable by death under Pakistani law, and blasphemy accusations stir such emotions that they are almost impossible to defend against.
Dozens have been killed following blasphemy claims, sometimes by mobs of men.
Rights groups say the blasphemy law is exploited by religious extremists as well as ordinary Pakistanis to settle personal scores.
During the appeal hearing on October 8, a three-member panel of Supreme Court justices appeared to question the case against Asia Bibi, with Justice Asif Saeed Khan Khosa, considered Pakistan's top expert in criminal law, listing flaws in the proceedings.
"I don't see any derogatory remarks vis-a-vis the holy Koran as per the FIR," added Chief Justice Saqib Nisar, referring to the initial complaint filed in the case.
Approximately 40 people are believed to be on death row or serving a life sentence in Pakistan for blasphemy, according to a 2018 report by the United States Commission on International Religious Freedom.
Leading rights groups have long criticised the legislation, saying it is routinely abused to justify censorship, persecution, and even murder of minorities.
In recent years, it has also been weaponised to smear dissenters and politicians.
Mere calls to reform the law have provoked violence, most notably the assassination of Salmaan Taseer, the governor of Pakistan's most populous province Punjab, by his own bodyguard in broad daylight in Islamabad in 2011.
Taseer had also called for Asia Bibi's release. His assassin, Mumtaz Qadri, was executed in 2016 and has been feted as a hero by hardliners, with a shrine to him built by Islamists just outside the capital.
Taseer's son Shahbaz tweeted "Pakistan Zindabad", meaning "Long live Pakistan", following the ruling.
Politicians including new prime minister Imran Khan invoked blasphemy during a general election this summer, vowing to defend the laws.
Analysts have warned the tactic could deepen sectarian fractures and potentially spill into violence.