A judge ruled that the threat of deportation had been bad for the mental health of the man, known only as 'G', The Telegraph said.
The government had repeatedly tried to expel ‘G', accusing him of helping to send young British Muslims abroad to train as jihadists.
The man had lost two previous appeals against deportation but human rights laws prevented his deportation to Algeria.
However, the Special Immigration Appeals Commission has now found that the man no longer poses a risk to national security in Britain.
The ruling was another blow for Home Secretary Amber Rudd, who lost a series of court cases involving the deportation of suspected terrorists last year.
A Home Office spokesperson told the Telegraph that the government was now considering other options.