The Government is no longer seeking to deport the doctor cleared of involvement in the London and Glasgow bomb plots, sources said today.
The Home Office had maintained that despite Mohammed Asha being cleared at trial, he still presented a threat to national security.
The case against him was due to be heard by the Special Immigration Appeals Commission (Siac) in October, but has been withdrawn.
At a Siac bail hearing in January, lawyers for the Home Secretary said Dr Asha was a threat to national security and should be sent back to Jordan.
But the panel, chaired by Mr Justice Mitting, ruled he could be released on bail on the condition that he reported to a police station near his Birmingham home once a week.
At the hearing, the Home Office maintained Dr Asha had provided "substantial funds" to Iraqi doctor Bilal Abdulla, who was sentenced to 32 years in prison for conspiracy to murder.
Abdulla, and Kafeel Ahmed who died in the attacks, plotted to kill hundreds of people by planting two bombs in the West End in June 2007.
When that failed, they drove a Jeep packed with petrol bombs and gas canisters into a terminal building at Glasgow Airport.
Dr Asha was accused of conspiracy to murder and conspiracy to cause explosions but was cleared by a jury at Woolwich Crown Court.
He told the tribunal he wants to stay in this country and continue his work as an NHS neurosurgeon, but officials are still examining his immigration status.
A Home Office source said Dr Asha's application for leave to remain in the UK is still being considered by officials.
The source confirmed the Government was no longer seeking to deport Dr Asha on the grounds that his presence was "not conducive to the public good".
"He has applied for leave to remain, which is being considered. A decision will be made in due course," the source said.
Dr Asha's solicitor said today's revelations left his client "entirely vindicated".
Tayab Ali, a partner at Irvine Thanvi Natas, said the 28-year-old father-of-one was determined to resume his career in the NHS.
He said: "Mohammed Asha always said he was innocent and was not a threat to national security. Now, finally, he has been entirely vindicated.
"Hopefully he can now get back to his position before June 30, which was offering help and support to people in the UK by being an NHS doctor.
He said he hoped Dr Asha's leave to remain application was dealt with fairly by immigration officials.
"It would be really bad and unfair for them to refuse a doctor as talented as Dr Asha," he said.
When he was arrested Dr Asha worked for the University Hospital of North Staffordshire in Stoke-on-Trent.
At the bail hearing, a colleague, consultant neurosurgeon Rupert Price, gave Dr Asha a glowing reference, saying he would not be surprised if Dr Asha became the best neurologist in Britain.