CIA contractor Ray Davis freed over Pakistan killings
Raymond Davis, 36, was alleged to have shot dead two men in the eastern city of Lahore in January following what he said was an attempted armed robbery.
The acquittal came when relatives of the dead men pardoned him in court.
They confirmed to the judge overseeing the case that they had received compensation - known as "blood money".
Under Pakistani Sharia law, relatives of a murder victim can pardon the killer.
Reports say about 18 family members of the two dead men were in court on Wednesday and confirmed that they wanted Mr Davis to be freed and pardoned because they had received "blood money".
The Pakistani media has reported that the families received 200 million rupees ($2.34m) but US Secretary of State Hillary Clinton denied the US government had paid any blood money.
Protests against the acquittal took place in Karachi, Lahore and Islamabad. In Lahore demonstrators clashed with riot police near the US consulate.
Six people were injured and several others were arrested after police baton-charged the crowd.
In other parts of Karachi, Lahore and Islamabad demonstrators set tyres on fire and disrupted traffic.
Cameron Munter, the US ambassador to Pakistan, said that he was "grateful for the generosity" of the families.
"I wish to express, once again, my regret for the incident and my sorrow at the suffering it caused," he said.
Mr Munter said that the US Department of Justice has opened an investigation into the incident.
Washington has always insisted that Mr Davis had diplomatic immunity and was acting in self-defence.
See www.bbc.co.uk for full story.