The court absolved the captain and two officers, ruling that charges against them fell outside of Panama's jurisdiction, the country's judicial authority said in a statement.
The Chong Chon Gang ship was seized in July last year for smuggling Soviet-era arms, including two MiG-21 jet fighters, under thousands of tonnes of sugar.
Thirty-two North Korean sailors and the ship were released back in February.
A United Nations report issued in March said North Korea has developed sophisticated ways to circumvent United Nations sanctions, including the suspected use of its embassies to facilitate an illegal trade in weapons.
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Panama court orders release of jailed North Korean sailors
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