Noel Ruddell, 44, was freed from Carstairs State Hospital in Lanarkshire when a court accepted that doctors could not treat his personality disorder. He is believed to have already left Scotland for England.
Mr Ruddell was sent to Carstairs in 1992 without limit of time after pleading guilty to culpable homicide. He shot dead James McConville in the Gorbals area of Glasgow in December 1991 and also fired at passers- by during a siege.
Sheriff John Douglas Allan, granted Mr Ruddell an absolute discharge at Lanark Sheriff Court yesterday. Mr Ruddell had refused to participate in psychological treatment, so giving him the opportunity to seek release thanks to a legal loophole.
Under the Mental Health Act, the mentally ill can be locked up only if they are judged treatable in a institution. The Government announced plans last month to change the law to prevent the release of people such as Mr Ruddell. In future, people, even those with untreatable disorders, would be detained indefinitely if they pose a threat to the public.
However, the loophole remains open and Mr Ruddle is the first to exploit it successfully. An application by another patient has been dismissed. There are understood to be a number of similar appeals pending.
Anthony McConville, 26, the brother of Mr Ruddell's victim, yesterday said: "I am very, very angry. If he could not be treated then he should be jailed for murder, like other people who commit murder."
During the civil action the court heard from Dr John Baird, the psychiatrist in charge of Mr Ruddle when he was sent to Carstairs, who said there was nowhere else in Scotland where he could receive treatment in a secure environment. Mr Ruddell's case was extremely complicated because alcohol and drug abuse tended to trigger his personality disorder, but the same man could be an "affable, socially skilled and controlled person", said Dr Baird. However, other psychiatrists said he could be treated more effectively outside Carstairs.
Donald Dewar, the First Minister of Scotland, said: "Ministers will consider urgently, with their legal and policy advisers, the effects of this judgment. If it is necessary to change the law in the light of this judgment ministers will do so."
David McLetchie, the leader of the Scottish Conservatives, said: "This is a horror story which chills the blood." He called for emergency legislation to protect the public.
Roseanna Cunningham, the justice spokeswoman for the SNP, described the decision as "appalling".Reuse content