A New York judge has dismissed the sexual assault case against former IMF director Dominique Strauss-Kahn.
The move came as prosecutors cited doubts over the credibility of his accuser, 32-year-old hotel maid Nafissatou Diallo.
Mr Strauss-Kahn, 62, was accused in May of attacking the African immigrant as she entered his hotel room to clean it.
The ruling means he is a free man, though he still faces a civil suit Ms Diallo filed this month.
"Our inability to believe the complainant beyond a reasonable doubt means, in good faith, that we could not ask a jury to do that," Assistant District Attorney Joan Illuzzi-Orbon told Judge Michael Obus.
'Hurried sexual encounter'
The dismissal of criminal charges at the New York State Supreme Court will take effect once the judge rules on an appeal against the move.
Mr Strauss-Kahn, considered a French presidential contender before the case, arrived for the hearing in lower Manhattan on Tuesday in a six-car motorcade with his wife Anne Sinclair.
Outside, about two dozen placard-waving protesters denounced the result, their cries audible from the packed courtroom on the 13th floor.
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At the scene
Barbara Plett
BBC News, New York
Outside court a noisy group of demonstrators - mostly feminists and socialist activists - urged the judge not to drop the case. "Another rich powerful man gets away with whatever he pleases," read one banner.
Amid the chanting, a lone voice shouted, "she's a liar, she's a liar". It came from an African woman in a black cloak and headscarf. Brandishing a signboard that questioned in lurid detail Nafissatou Diallo's virtue, the woman claimed Mr Strauss-Kahn's accuser, an African immigrant, had tried to frame him.
In fact, prosecutors asked for the charges to be dropped not necessarily because they believed the former IMF head to be innocent, but because they had lost confidence in the hotel maid's credibility. Mr Strauss-Kahn looked pleased, but not jubilant, and gave his wife a small smile.
The combustible mix of sex, race and class presented by the case has particular resonance here. With a civil case now pending, interest will probably rumble on in America if not in Europe.
Ms Diallo claimed Mr Strauss-Kahn had confronted her in his luxury hotel suite in the city on 14 May and forced her to perform oral sex.
Prosecutors said DNA evidence had found that a "hurried" sexual encounter did occur between the two, but it did not establish Ms Diallo's claim that it was non-consensual.
In a statement released by his legal team on Tuesday, Mr Strauss-Kahn said: "These past two-and-a-half months have been a nightmare for me and my family.
"I want to thank all the friends in France and in the United States who have believed in my innocence, and to the thousands of people who sent us their support personally and in writing.
"I am most deeply grateful to my wife and family who have gone through this ordeal with me."
He added: "We will have nothing further to say about this matter and we look forward to returning to our home and resuming something of a more normal life."
'Rush to judgment'
Outside the court on Tuesday, Mr Strauss-Kahn's lawyer, William Taylor, accused the media, police and prosecutors of a "collective rush to judgment".
"I want to remind you how uncritically the media examined this case from the beginning without even looking at the improbability of the story on its face," he said.
In court papers filed on Monday, Manhattan prosecutors said they did not feel at ease pursuing the case, citing deep concerns over Ms Diallo's credibility.
Protesters chanted slogans and waved placards outside the court
She "has not been truthful on matters great and small" and has an ability to present "fiction as fact with complete conviction," they wrote.
Medical and DNA evidence, meanwhile, was "simply inconclusive" as proof of a forced sexual encounter, they added.
Mr Strauss-Kahn's was forced from his job as director of the International Monetary Fund after his arrest on board an Air France jet in May.
But within weeks, prosecutors said there were inconsistencies in Ms Diallo's accounts of the alleged assault and of her background.
It was revealed that she had been recorded discussing the case with a jailed friend and appeared to refer to Mr Strauss-Kahn's wealth, which his supporters said pointed to a financial motive.
Prosecutors also said Ms Diallo had not been truthful in tax documents, nor on an asylum application form in her account of a gang rape she said she suffered back in Guinea.
Ms Diallo's lawyer said on Monday that she had been denied justice
Mr Strauss-Kahn was later freed from his restrictive bail conditions.
Ms Diallo then took the unusual step of giving media interviews, defending her allegations against him, and on 8 August, she filed a civil suit against Mr Strauss-Kahn.
The Frenchman's legal travails are not yet over: authorities in Paris are still considering whether to press charges against him over a claim by French writer Tristane Banon that he tried to rape her during a 2003 interview.
Ms Banon made the allegation after the Diallo case, saying that she feared no-one would have believed her beforehand.