Son Jong-woo, who ran the Welcome to Video website, spent 18 months producing and distributing indecent photographs of children in South Korea.
After his initial release in April, Son was taken into custody after an American extortion order was issued.
But he will now be released again after the request was denied.
Campaigners had urged the court to send him to the US, where he would have faced a harsher punishment than in South Korea.
He was charged in August 2018 on nine counts of administering the website, which operated on the dark web.
On Monday, Seoul’s High Court ruled that having Son countered would be a favorable fight rather than child exploitation.
“He ruled out that excitement could obstruct South Korea’s investigation into the content of sexual exploitation,” the court said.
“The resolution should not be construed as an exemption. Your child will have to actively cooperate with the investigation and face appropriate punishment.”
His was arrested in March 2018 and the government discovered about 8 terabytes of child sexual abuse videos in the arrest process.
He was identified as the operator of the Welcome to Video website, a secret online lair for other Americans who replaced the video station of children assaulted by sexually abused friends. Among the patients was a child only six months old.
The authorities found that more than three hundred other Americans connected to the website in a wide variety of countries, adding South Korea, Great Britain, Germany, Saudi Arabia, Canada, Spain, Brazil and Australia.
It has operated the site from 201 to March 2018, when it was dismantled.