An order from the Lisbon court stated that de Sousa should be "freed immediately", at the request of the Italian authorities.
The former spy was to have been extradited on Wednesday to Italy, where she was in 2009 sentenced in absentia to four years in prison for her involvement in the 2003 kidnapping in Milan of Abu Omar, an Egyptian national and radical Islamist. However, Italy's president, Sergio Mattarella, on Tuesday issued a pardon reducing that sentence by one year.
Under Italian law, prison sentences of up to three years may be substituted by community service. As a result the Milan prosecutor handling the case withdraw the European arrest warrant, so cancelling the extradition proceedings.
De Sousa, who has dual Portuguese and US nationality, was first briefly detained in Portugal in October 2015. She was against detained this Monday, pending her extradition.
She has denied that she was involved in the kidnapping but also claims to have been a CIA agent and in 2009 sued the US State Department, claiming that it should grant her diplomatic immunity for her role in the kidnapping. The State Department denied this, and she lost the lawsuit.