He was arrested on February 3 in connection with an extortion case registered with J J Marg police station in central Mumbai.
The police sought further remand of Kaskar, whose police custody ended today, on the ground that they wanted to investigate his connections with Dawood and the latter's involvement in the case.
However, the magistrate rejected the remand application after Kaskar's lawyer argued that further custody was not required.
Kaskar also filed a bail application today which will be heard on Monday.
Kaskar and two others were booked under sections 385 (extortion), 323 (causing hurt) and 34 (common intention) of the Indian Penal code.
Kaskar was deported to India from the United Arab Emirates in 2003 as he was wanted in a murder case and the Sara Sahara illegal construction case. However, he was acquitted in both the cases in 2007.