Mr McPhee, 50, of Immingham, Lincolnshire, has consistently protested his innocence and the case was referred back to the appeal court after an investigation by the Scottish Criminal Cases Review Commission (SCCRC). He was freed on bail in 2003 pending the outcome of the case.
The Crown recently accepted that Mr McPhee was the victim of a miscarriage of justice, and said it would no longer seek to support the guilty verdict against him.
Mr McPhee's counsel raised doubts about the credibilityof evidence given by key witnesses and police. However, Northern Constabulary said last night it will not reopen the case and it is not seeking anyone else for the murder.
Yesterday, at the Court of Appeal in Edinburgh, Mr McPhee stared straight ahead as Lord Justice Clerk Lord Gill, sitting with Lord Nimmo Smith and Lord Osborne, told him his conviction was quashed.
Supported by his wife, Pauline, 43, and sons George, 24, and Andrew, 23, he said: "I feel great now, but a bit disappointed that we don't know what happened or how it came about that I was in prison for 18 years. I would like a public inquiry to find out exactly what happened."
Asked if he had a message for Mrs Sutherland's family, he added: "I hope they get the person that committed the murder, because he's still out there, or she's still out there somewhere."
Mrs Sutherland's husband, Kenny, declined to comment, but a friend said: "There is no change in the minds of the family about the verdict. It's a distressing time and they just want to be left alone."
A spokesman for Northern Constabulary said the force has co-operated fully with SCCRC and that all available evidence was reported to the procurator-fiscal at the time.
The killing of Mrs Sutherland, called Totsie because of her 4ft 9in, 6st 4lb build, is one of the most notorious crimes in the Highlands. Mr McPhee was found guilty of her murder in December 1985 and jailed for life with a recommendation that he serve no less than 25 years. The judge, Lord Hunter, described the killing as "peculiarly callous and brutal".
Mrs Sutherland disturbed a housebreaker and was stabbed seven times with a kitchen knife and had her throat slit. Her body was found by her ten-year-old daughter. Almost a year later, Mr McPhee was arrested. He was brought up in the Culbokie area but, having moved to Humberside, he returned to the Black Isle on several housebreaking raids.
Mr McPhee blamed an accomplice, Colin Hawkins, for the murder, insisting he had remained outside the house. But Mr Hawkins insisted it was McPhee who had gone in.
Footprints made by the same person were found inside and outside the house. A cast was made and Detective Superintendent Andrew Lister, who later died, told the trial that Mr Hawkins's size-seven feet were too small, but that Mr McPhee's size-nines were the right size.
However, the jury never heard that the officer's opinion on the footprint had been contradicted by scientists. Asked if he felt bitter, Mr McPhee said: "I have my feelings, yes, but what can you say? The guy's no longer with us. There's good and bad in all walks of life."