The Qatari - who was suspended by the Asian Football Confederation this week over an accounts probe - had his appeal upheld over lack of evidence.
Mohamed Bin Hammam has lifetime Fifa ban overturned
The ruling by CAS will cause huge embarrassment to FIFA, whose ethics committee imposed the lifetime ban for bribery one year ago.
It is understood that while the Qatari has not been proven innocent by CAS the appeal has been upheld on the grounds of a lack of evidence.
FIFA can bring fresh proceedings against Bin Hammam if the revamped ethics committee has any new evidence.
Bin Hammam was found guilty by FIFA's ethics committee last year of paying bribes to Caribbean officials while campaigning against Sepp Blatter for the FIFA presidency.
Jack Warner, who quit as FIFA vice-president after the scandal broke, told officials gifts of 40,000 US dollars each and totalling around 1million US dollars had come from Bin Hammam.
The CAS panel made its decision by a 2:1 majority and said in its ruling: "The CAS panel has not been presented with any direct evidence to link Mr Bin Hammam with the money's physical presence in Trinidad and Tobago, its transfer in a suitcase or otherwise to Mr Warner, and its subsequent offer to the CFU members for the purpose of inducing them to vote for Mr Bin Hammam."
The CAS panel added that "it is more likely than not that Mr Bin Hammam was the source of the monies" and that "his conduct, in collaboration with and most likely induced by Mr Warner, may not have complied with the highest ethical standards that should govern the world of football and other sports".
CAS stressed it was not finding Bin Hammam innocent but that the case was "not proven".
"The panel is doing no more than concluding that the evidence is insufficient in that it does not permit the majority of the panel to reach the standard of comfortable satisfaction in relation to the matters on which the appellant was charged," the ruling states.
Bin Hammam had been president of the Asian Football Confederation and he was provisionally suspended by that governing body earlier this week.
That followed an audit by PricewaterhouseCoopers that centred on contract negotiations and payments to and from AFC bank accounts during Bin Hammam's presidency.
He was alleged to have breached a number of AFC regulations including relating to gifts and bribery. Sources close to Bin Hammam say the allegations are further attempts to tarnish his name.
Bin Hammam always claimed the FIFA action against him was retribution for having challenged Blatter for the presidency.
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