"The chamber by majority holds that the prosecution has not provided sufficient evidence to establish that the crimes were committed" by Seselj, Judge Jean-Claude Antonetti said at the International Criminal Tribunal for the former Yugoslavia (ICTY).
"Following the verdict, Vojislav Seselj is now a free man."
Seselj, 61, had faced nine charges of war crimes and crimes against humanity over his alleged ruthless quest to unite "all Serbian lands" in a "Greater Serbia".
But the judges found that although crimes were committed, Seselj had not had "hierarchial" responsibility for his paramilitary forces after they came under the control of the Serbian army and could not be held responsible for their crimes.
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They said the prosecution's case was full of "confusion" and "ambiguities" and had failed to clarify the broader context in which events in Croatia and Bosnia took place.
The prosecutor's office said it took note of the verdict and would carefully review it to see if there are grounds to appeal.
"We fully understand that many victims and communities will be disappointed by the trial chamber's judgement," the prosecutor's office added in a statement.
Seselj, who was excused from attending the judgement on medical grounds after treatment for colon cancer, welcomed the verdict.
"This time, after all the trials that accused innocent Serbs who received draconian sentences, two judges appeared who are honourable and fair people," Seselj told reporters in Belgrade.
The judgement comes exactly a week after former Bosnian Serb leader Radovan Karadzic was sentenced to 40 years in jail for genocide and nine other charges by the UN war crimes court.