The 64-year-old was accused of ordering a series of atrocities committed in Sarajevo during fighting in 1992.
But in a hearing at London's City of Westminster Magistrates' Court, District Judge Timothy Workman said there was evidence the trial could be "politically motivated" and he ruled against extradition.
Mr Workman said: "These proceedings are brought and are being used for political purposes and as such amount to an abuse of process of this court.
"On the first day of this extended hearing, I was satisfied that there was prima facie evidence of an abuse of process and, as a result of that ruling, evidence has now been adduced in relation to that issue."
Ganic is accused of ordering a series of atrocities in Sarajevo during fighting in 1992.
Defence lawyers for Ganic have argued that two previous investigations found he had no case to answer and there was insufficient evidence to warrant a trial, claims the Serbs have denied.
Serbian authorities allege that while in Sarajevo, Ganic ordered attacks on a medical convoy and a hospital and the execution of soldiers who surrendered.
All of these, they claim, were illegal under the Geneva Convention.
But the defence contests the suggestion that Ganic was even in charge at the time of the attacks.
Judge Workman said there were two separate investigations carried out to determine whether there was a case against Ganic.
One investigation, carried out by the International Criminal Tribunal for former Yugoslavia (ICTY), concluded there was no case.
Another, commissioned by the prosecutors office for the State of Bosnia and Herzegovina, ruled that the case against Ganic was politically motivated.
Judge Workman said: "The combination of the two leads me to believe that these proceedings are brought and are being used for political purposes and as such amount to an abuse of the process of this court."
He said he was not provided with any significant new evidence which was collated after the two independent investigations were instigated.
He added: "The evidence which has been subsequently obtained is not significant and does not justify any change in the initial decision."
Judge Workman continued: "In the absence of any additional significant evidence, there would appear to be only two possible explanations, that of incompetence by the Serbian prosecutors or a motive for prosecuting which is based upon politics, race or religion.
"From the evidence I have received from Mr Petrovic (the Serbian deputy prosecutor) I am satisfied that the War Crimes Prosecutors Office is far from incompetent."
Outside court, a spokesman for the Serbian War Crimes Prosecutors Office said the ruling would be appealed against.
Spokesman Vladimir Vukcevic said: "We are not happy with the decision and shall appeal within the timeframe."
During the hearing, Dr Ganic sat at the back of the crowded courtroom with his son and daughter sitting either side of him.
Outside court, Dr Ganic said he had always acted honestly and three courts cases had cleared him: "This is a textbook example of abuse," he said.
"The government of Serbia tried to undermine the judiciary in this country, they used taxpayers' money and they kept me here for five months.
"The conspiracy will be investigated. But the point here is this has been the third tribunal for me.
"The ICTY at the Hague didn't find anything - they said I was an innocent man. The War Crimes Chamber, in Bosnia, run by foreigners and established by the United Nations, proved there was nothing against me. I acted honestly, with the law, defending my country.
"But the Serbs didn't like those tribunals. They somehow misused the system here and kept me for five months and created a fog that there was something, but there was nothing."
