The man, identified as Sabir K, is accused in the US of planning to commit acts of terror including a suicide attack on a US military base in Afghanistan's Kunar province in 2010.
"The court decided on appeal that suspect Sabir K cannot be extradited to the United States," the appeals court said in a statement.
The 26-year-old Sabir K said that the US played a role in what he said was his torture in Pakistan following his arrest almost three years ago.
Without proof that the US was not involved in his alleged torture, extradition is illegal, the court said.
Arrested in Pakistan, Sabir K was brought back in April 2012 to the Netherlands, where a string of court rulings have accepted and then rejected his extradition.
Sabir K opposed his extradition request -- filed by the United States in June 2012 -- claiming that US officials had a role in his alleged torture while in custody in Pakistan.