The International Criminal Court announced its decision on Tuesday, saying prosecutors failed to prove Ngudjolo's commanding role in the murder of 200 people in a 2003 attack on a village using child soldiers.
"The chamber acquits Mathieu Ngudjolo of all the crimes against him. The chamber orders … the immediate release of Mr Ngudjolo," presiding Judge Bruno Cotte said.
Cotte stressed the acquittal did not mean the court felt no crimes were committed in Bogoro village but that witness testimony had been "too contradictory and too hazy".
"After receiving all the evidence, the chamber hereby concludes that the prosecution did not prove beyond all reasonable doubt that Mathieu Ngudjolo committed the various crimes as alleged."
The judge ordered his immediate release but the prosecution requested a hearing at 1:30pm to discuss its appeal.
Ngudjolo was once one of the most important militia leaders in northeastern Democratic Republic of Congo's mineral-rich Ituri province.
Now 42, Ngudjolo faced seven war crimes charges including using child soldiers to fight in his militia and three crimes against humanity charges for the bloody massacre of 200 villagers at Bogoro village on February 24 2003.
First ICC acquittal
It is the first time the Hague-based ICC, the world's only permanent war crimes tribunal, acquitted a suspect.
The court has only convicted one suspect, former Congolese rebel fighter Thomas Lubanga, in March for recruiting and enlisting child soldiers.
Judge Cotte said three witness in particular who testified for the prosecution were "too contradictory and too hazy, too imprecise. The Chamber was not able to base itself on their testimony."
He said the acquittal did not "put into question what happened to the people on that day".
But, he said, there was no evidence to show that Ngudjolo was the commander of the militia or that he was "able to impose his authority as a soldier".
'Lacking in justice'
Geraldine Mattioli-Zeltner, advocacy director of Human Rights Watch's International Justice Programme, said the verdict "really leaves the victims in Bogoro lacking in justice".
She said the acquittal underscored the urgency for the prosecutor's office to improve the way it builds cases.
"The judges really insisted on the fact that a lot of the witnesses were not credible enough and that they didn't have enough evidence in front of them," she said.
"It's time for urgent and important lessons to be learned about investigating practices," she said.
Summing up the case in May, the court's then deputy chief prosecutor Fatou Bensouda recounted witness testimony on how victims were burnt alive, babies smashed against walls and women forced to serve as sex slaves.
"Child soldiers are said to have attacked Bogoro village, killing civilians, destroying property and pillaging," a charge sheet summary states.
The attack by ethnic Lendu and Ngiti-based rebel armies on Bogoro was "intended to 'wipe out' or 'raze' [the] village by killing the predominantly Hema population," in order to secure Lendu and Ngiti control of the main route to Ituri's provincial capital Bunia, it added.
A former deserter from the old Zaire army (FAZ) in 1996, Ngudjolo became leader of the Lendu-based Nationalist Integrationist Front (FNI) rebel movement and "had ultimate control over FNI commanders".
Ngudjolo, who pleaded not guilty at the start of his trial on November 24 2009, told judges he learned of the attack a few days after it happened during a "meeting with generals".
His job as a trained nurse was "of a humanitarian nature", Ngudjolo said, denying he was ever a militia member.
His ally Germain Katanga faces similar charges but that case will be handled at a later stage, judges said.
Ngudjolo was arrested by Congolese authorities and transferred to the ICC on October 17 2007.
His main adversary, Hema former militia leader Thomas Lubanga, was sentenced in July to 14 years behind bars for using child soldiers in his own rebel army.
In 2003, DR Congo was just starting to emerge from a war that embroiled the armies of a half-dozen nations and the isolated east was rife with violent militia groups.
Clashes in Ituri province broke out in 1999 and devastated the region, said the indictment, leaving some 60 000 dead, according to non-governmental group tallies. – AFP