Harun Causevic, 18, was arrested along with fellow teen Sevdet Ramden Besim in raids in Melbourne in April and both were charged with conspiring to commit a terrorist act.
But the terrorism-related charge against Causevic was struck out today and he was released on bail, a Magistrates Court of Victoria spokeswoman told AFP.
Three weapons charges against him were adjourned until November, she added. Besim remains in custody on terror offences.
Five men were initially arrested in the counter-terrorism raids in Melbourne but only two were charged with conspiring to commit a terrorist act on Anzac Day, when Australian and New Zealand Army Corps troops who died in combat are remembered.
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Australian Federal Police today said they had been advised "there was insufficient evidence to continue the prosecution for this offence".
But they defended the raids, saying they had taken an "operational resolution at an early stage" to ensure there was no threat to the public.
"Police would rather the risk of a prosecution failing than the risk of members of the community being hurt or killed through no overt action," they said in a statement.
Victoria state Premier Daniel Andrews said police were in a difficult position of trying to keep the public safe without overstepping their powers.
Australia raised its threat level to "high" last September and has since carried out a series of counter-terrorism raids, with alarm fuelled by the departure of more than 100 of its nationals to Iraq and Syria to fight with jihadists.