The prosecutor's office said the suspect had made extensive statements during a police hearing, but denied the offence.
It added it had been impossible to track the truck driver by eye-witnesses following the attack and that the investigation so far had not been able to prove that the suspect was in the truck's cab at the time of the attack.
The man who was arrested, a 23-year-old Pakistai refugee named as 'Naved B', matched witness descriptions of the truck driver, but investigators have not been able to prove he was in the truck's cab at the time of the attack.
He was arrested shortly after the atrocity but denied involvement.
Police are still hunting for the attacker, who is presumed to be armed.
Under German law, prosecutors have until the end of the calendar day following an arrest to seek a formal arrest warrant keeping a suspect in custody.
Berlin Christmas market lorry attack
Show all 18
'Naved B' was granted a temporary residence permit in June 2016, according to the Die Welt newspaper, which cited a criminal police report.
German interior minister Karl Ernst Thomas de Maizière told a press conference on Tuesday that his application for asylum had not yet been completed.
When he arrived in Berlin in February, 'Naved B' spoke a dialect for which no translator could be founded, Mr Maizière added.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies