The regional court in the western city of Cologne, citing a lack of evidence, said it would not try the unnamed pensioner who was charged in January with the murder of 25 people committed by a group, and with aiding and abetting the murder of several hundred people.
SS troops slaughtered 642 people in the tiny village in western France on June 10, 1944, in a horrific World War II crime that deeply scarred the French nation.
"The court determined with today's decision that this was not the case."
The court said both the prosecution as well as co-plaintiffs representing victims' families had the right to appeal the ruling within a week.
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The accused, who was 19 at the time, had acknowledged that he was in Oradour-sur-Glane and a member of the SS but disputed any involvement in the murders.
The male victims were mowed down with machine guns in a barn, with any survivors shot at close range with pistols before the barn was set ablaze.
Members of the unit used explosives, automatic weapons and hand grenades to kill many of them, then set the church on fire.
The suspect was accused of abetting the murder by either assuming blockade and surveillance duties within sight of the church or carrying flammable material to the church, prosecutors said.
Among the 642 victims in the village were 254 women and 207 children.