The Seoul Central District Court ruled against prosecutors who sought Democratic Party leader Lee Jae-myung's arrest, saying there were insufficient grounds to support their argument that he may try to destroy evidence.
Lee welcomed the decision and thanked the court as he walked out of a holding centre soon after the ruling, which came well after midnight.
"I give my deepest gratitude to the judiciary for clearly proving that it is the last bastion of human rights," Lee said.
The criminal charges against Lee have not been dropped. Justice Minister Han Dong-hoon said the arrest warrant review is part of a process that is not over and the court's decision does not mean Lee is innocent.
Lee has accused the prosecutors of pursuing a political motivated case against him and denied any wrongdoing, calling the allegations "fiction" and a "political conspiracy".
Lee went on a hunger strike for 24 days this month, demanding that President Yoon Suk Yeol's government correct policy failures, including economic mismanagement and not doing enough to stop Japan from releasing treated wastewater from the Fukushima nuclear plant.
The arrest of a main opposition leader would have been unprecedented and could have crippled Lee's leadership ahead of a parliamentary election next year in which keeping his party's majority is at stake.
Lee had narrowly lost to conservative Yoon, a career prosecutor, in the presidential election last year.
Lee entered the court on Tuesday morning appearing frail and using a walking stick.
He is accused of asking a company to illegally transfer $8 million to North Korea when he was the governor of Gyeonggi Province.
He is also accused of breaching his duty as a public official over losses of 20 billion won ($15 million) incurred by a municipal development corporation while he was mayor of Seongnam along with other charges.
Some members of Lee's party joined the conservative ruling party in voting last week to lift Lee's immunity from arrest as a member of parliament, drawing criticism within the party.
(Reporting by Hyunsu Yim and Soo-hyang Choi; Editing by Jack Kim and Gerry Doyle)
By Hyunsu Yim
