The court also directed the Andhra Pradesh government to pay Rs 1 lakh compensation to the youth, who spent eight years in jail without any evidence of his involvement.
It also ordered action against the police officers, who investigated the case.
The Mahila Sessions Court in Vijayawada in 2010 had sentenced Satyam Babu to life imprisonment for the rape and murder of Ayesha Meera.
The B. Pharmacy student was raped and murdered in a private women’s hostel in Ibrahimpatnam near Vijayawada on December 27, 2007.
Satyam Babu was arrested in a cellphone robbery case on August 17, 2008 and police had said he confessed to her murder during interrogation.
The youth has been suffering from GB Syndrome, which had badly affected his nervous system and his two legs were paralysed.
The arrest had created a sensation in the state as the girl’s parents had claimed that the Dalit youth is being made a scapegoat to save the real culprits.
Dalit organisations and human rights activists had also protested the arrest of Satyam Babu, claiming that he is innocent.
Meera’s parents Shamshad Begam and Iqbal Basha alleged that relatives of a then state Minister Koneru Ranga Rao were involved in the rape and murder and to mislead the investigations, Satyam Babu was arrested.
Following Friday’s court order, Meera’s parents said Rs.1 crore should be given compensation for Satyam Babu and demanded that the government set up a fast-track court to try and punish the real culprits.