Senior Iraqi militia commander Qassem Musleh was released from government detention on Wednesday, his son confirmed to The National.
Mr Musleh, leader of the Iran-backed Popular Mobilisation Forces operations in Anbar, was arrested on May 26 on suspicion of terrorism and in connection with the targeted killing of civil society activists and protesters.
"He is on his way to his house in Karbala," his son Mohammed told the National.
Mr Musleh's arrest sparked a vigorous dispute between the government and powerful Iraqi militia members demanding his release.
Prime Minister Mustafa Al Kadhimi promised to investigate the unlawful actions by armed groups accused of killing protesters and dissidents with impunity.
The day after the arrest of Mr Musleh, armed militia members took to Baghdad's streets, gathering near the office of the prime minister and at an entrance to the Green Zone, risking a dangerous escalation of force.
Security forces and the elite Counter-Terrorism Service were deployed to protect the government and diplomatic missions in Baghdad.
Mr Musleh was accused of ordering the killing of Ihab Al Wazni, a prominent activist in the months-long pro-reform, anti-regime protests in Karbala South of Baghdad last month.
That charge has been dropped due to insufficient evidence, an official with the Judiciary Council told The National.
Later on Wednesday, the Judiciary Council said Al Wazni's family failed to submit any evidence.
At the time of the assassination, Mr Musleh was abroad and has denied any role.
"The investigative court didn't find any direct or indirect evidence that he was involved in that crime so he was released," the statement added.
Mr Musleh made a triumphant return to his hometown, with PMF fighters and supporters waving the paramilitary troops flags and holding posters of support as cattle were slaughtered on his arrival.
"We expected this, the Hashed leaders would be accused based on Article 4 [which deals with] terrorism while terrorists will be treated as martyrs, and this is what happened," Mr Musleh told a local TV station in his first interview since his release.
He accused "the enemies" inside and outside of Iraq and some politicians of falsely accusing PMF leaders with such charges.
"PMF has had a role in supporting the state and protect Iraq...and will continue to do so," he added, flanked by supporters in military uniforms.