Australian citizen Charles Zentai has won an appeal against extradition to Hungary on war crimes charges.
He is accused of killing a young Jewish man during World War II while serving in the Hungarian army, then allied to Nazi Germany - a charge he denies.
Australia's Federal Court found that the government had not explored options other than surrendering him to Hungary, such as prosecution at home.
Mr Zentai, who is in his late 80s, had spent five years fighting extradition.
He moved to Australia after World War II and was living in the western city of Perth when the Hungarian government began extradition proceedings.
Speaking after Friday's ruling, Mr Zentai said long legal battle had put him and his family "through hell" and cost him his life savings.
"I have lost practically everything," he said.
The Federal Court overturned an extradition order made last year by Australia's Home Affairs Minister Brendan O'Connor, saying the case had exceptional elements that "set it apart from any precedent".
The court ruled that "the more humane solution" - trying Mr Zentai in Australia - had been dismissed "on the basis of longstanding policy".
Judge Neil McKerracher pointed out there were apparently "no live witnesses to the alleged events" and that statements relied upon to prove his guilt "were secured in arguably questionable circumstances".
Charles Zentai is accused of killing Jewish teenager Peter Balazs in Budapest in 1944.
At the time, Mr Zentai was a warrant officer in the Hungarian army.
The Hungarian government alleges that Mr Zentai took part in the fatal beating of Mr Balazs for not wearing a Star of David to identify him as Jewish. Mr Zentai says he was not in Budapest at that time.
The allegations against Mr Zentai were initially brought by the Simon Wiesenthal Center, a Jewish rights organisation dedicated to hunting down Nazi war criminals.
He is listed as one of the centre's 10 most-wanted suspects, for having "participated in manhunts, persecution and murder of Jews in Budapest in 1944".
It was not immediately clear whether the Australian government would appeal against the ruling.