The judgement of the high court as well as trial court is reversed. She was convicted and sentenced to death.
On the day the court reserved its judgment, Saiful Malook, counsel for Aasia Bibi, had argued that the appellant had not committed blasphemy and was being "persecuted due to her religious beliefs".
Pakistani police officers stand guard outside the supreme court in Islamabad, Pakistan, Wednesday, Oct. 31, 2018.
Pakistan's top court has acquitted a Christian woman who has been on death row since 2010 after being accused of insulting Islam's Prophet Muhammed. Dozens have been killed following blasphemy claims, sometimes by mobs of men.
She was condemned for allegedly making derogatory remarks about Islam after neighbours objected to her drinking water from their glass because she was not Muslim.
The allegations against Bibi date back to 2009, when she was working in a field and was asked to fetch water.
The trial of Bibi, who is an illiterate mother of five, has become a test case for Pakistan's commitment to protect its minorities, which have born the brunt of blasphemy accusations.
The women went to a local cleric and accused Bibi of blasphemy against the Prophet Mohammed, a charge punishable by death under colonial-era legislation. "We hope this time she will be completely exonerated and this wrongful conviction will finally be overturned as this is her last chance to be heard at court". Muslim radicals assassinated former Punjab Governor Salman Taseer and Shabbaz Bhatti in 2011.
Pakistan's 295-C blasphemy law is based on sharia (Islamic law) which mandates execution for those found guilty of committing blasphemy against Mohammed.
The Vatican had also appealed and called for the release of Ms Bibi, and Pope Francis met with her husband, Ashiq Masih, and daughter earlier this year.
A detailed judgement in the Ms Bibi case is expected later on Wednesday.
The ultra-Islamist Tehreek-e-Labaik Pakistan (TLP) party, which makes punishing blasphemy its main campaign rallying cry, earlier this month warned the court against any "concession or softness" for Bibi.