Mubarak was jailed for three years in May after being found guilty of fraudulently billing the government for millions of pounds worth of personal expenses.
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But the Court of Cassation, Egypt’s top appeals court, found that legal procedures were not followed properly.
It was the last remaining case keeping Mubarak behind bars. He has already been cleared over the killings of protesters during the 2011 uprising that toppled him.
A group of Mubarak supporters cheered and shouted in court when his sentence was quashed.
The 86-year-old has been in detention since April 2011 and his lawyer said last night that he hoped his client would soon be released from the Cairo military hospital, where he is currently being held.
But there were conflicting reports over whether the deposed president would be freed.
A court official at the chief prosecutor’s office said “paperwork is being processed” for Mubarak’s release but declined to speculate when that could happen.
However, an unnamed security official told the state-run news agency Mena that Mubarak would remain in detention because the Appeals Court ruling did not include a release order.
Political considerations could play a part if it is thought that allowing Mubarak to walk free may cause further divisions. The ruling overturned an earlier verdict which had sentenced Mubarak to three years in prison and his sons Alaa, 53, and Gamal, 51, to four years each, while four other defendants in the case were acquitted.
Mubarak’s lawyers appealed against that verdict.
In the case of the killings of protesters, a judge ruled that the charges were “inadmissible” on a technicality.
But the same judge also described the uprising – one of the first that swept the region in what later became known as the Arab Spring – as part of an alleged “American-Hebrew conspiracy” to undermine Arab countries for Israel’s benefit.
That ruling was a blow to the pro-democracy groups and youth groups that spearheaded the “revolution” against Mubarak.
The corruption case – dubbed the “presidential palaces” affair by Egyptian media – is linked to charges that the three Mubaraks embezzled millions of pounds of state funds over a decade toward the end of the president’s rule.
The money was meant to be for renovating and maintaining presidential palaces but was instead said to be spent on upgrading the family’s private homes.
Mubarak and his sons were also fined 21.1 million Egyptian pounds (£1.94 million) and ordered to reimburse 125m Egyptian pounds (£11m) to the state treasury.
The Mubaraks had returned around 120m Egyptian pounds to the state in connection with this case in the hope that the charges would be dropped, but the corruption proceedings against them continued anyway.
At the original trial, prosecutors alleged that Mubarak and his sons had billed the government for more than 100,000 Egyptian pounds (£9,196) of personal expenses.
They included utility bills, interior design, landscaping, furniture and appliances for several private homes and a public palace that was fraudulently transferred to their ownership.
Other expenses included renovating a villa, and building a new palace wing to accommodate one of Mubarak’s granddaughters, as well as constructing a mausoleum for a grandson who died, prosecutors said.
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