"The court dismissed today the case against Abdul Rahman for a lack of information and a lot of legal gaps in the case," an official told The Associated Press.
The official said Rahman, who potentially faced the death penalty, would likely be released soon.
"The decision about his release will be taken possibly tomorrow," he said.
Abdul Wakil Omeri, a spokesman for the Supreme Court, told the AP the case was dismissed because of "problems with the prosecutors' evidence."
Omeri said several of Rahman's family members have testified the man mental problems.
"It is the job of the attorney general's office to decide if he is mentally fit to stand trial," he told AP.
Rahman was being prosecuted under Afghanistan's Islamic laws for converting 16 years ago while working as a medical aid worker for an international Christian group that helped Afghan refugees in Pakistan.
Western countries -- who have troops serving in Afghanistan and who provide crucial foreign aid to the impoverished country -- had been pressuring the court and Afghan President Hamid Karzai to release Rahman.
Prime Minister Stephen Harper phoned Karzai Wednesday to express his concerns about 40-year-old.
Some Islamic clerics, meanwhile, had called for him to be put to death, saying Rahman would face danger from his countrymen if he were released.
Earlier Sunday Rahman had been moved to a notorious prison that is filled with hundreds of Islamic militants.
Rahman had been held at a packed police holding centre in central Kabul while his trial progressed, but was moved to the maximum security prison outside Kabul after his life was threatened by other inmates, a court official told The Associated Press.
Policharki Prison, where Rahman has been moved, is home to hundreds of Taliban and al Qaeda militants.
Rahman has reportedly been begging his guards to provide him with a Bible.
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I don't think this man should die, it's his decision to covert to whatever religion he wants, but while he will not be punished by being killed, he will be punished by burning in hell.
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