"He shall serve in prison for the rest of his natural life," Chief Justice M Muzammel Hossain pronounced in a crowded courtroom, overturning a war crimes tribunal ruling that awarded the 74-year-old leader death penalty last year.
A five-member bench of the apex court, headed by Hossain, pronounced the verdict by "majority view".
Sayedee is a stalwart of Jamaat, which was opposed to Bangladesh's 1971 independence siding with the then Pakistani junta, forming notorious militia groups like Al-Badr ad Al-Shams as auxiliary forces of the Pakistani troops.
The Tribunal had found Sayedee guilty of six major charges while the apex found valid three of those including killing, rapes and forceful conversion of a number of Hindus to Islam and relieved him of charges of mass killings.
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Attorney General Mahbubey Alam said the verdict has "saddened" him as he expected the apex court to uphold the tribunal judgment.
"My expectation was that his death penalty would be upheld, which has not been fulfilled...So I feel bad," he told reporters. He said that he now await the delivery of the full verdict for his detailed analysis.
"Islam never allows forceful conversion to Islam which he (Sayedee) did it in 1971," he said.
A son of Sayedee said he was deprived of justice as the apex court should have "acquitted my father and we would like to get it reviewed" but Alam said under the law there is no scope for such review for the cases of war crimes convicts.
Soon after the verdict, hundreds of angry protesters took to the streets here demanding the death penalty for Sayedee.
The Jamaat-e-Islami called a nation-wide shutdown tomorrow and Sunday to mount pressure for Sayedee's release.
"Sayedee has been repeatedly a victim of this government's oppression. He has been made a victim today by being deprived of justice from the highest court of the country in a false case by the government," party's acting Chief Mokbul Ahmad said.