Maya Kodnani, who served as a minister in the Gujarat state government then led by Modi, was sentenced to 28 years in jail in 2012 over the killing of 97 Muslims in the worst massacre during the riots.
Kodnani, 63, appealed to the Gujarat High Court which gave her the benefit of the doubt but upheld the convictions of 12 other accused, including Babu Bajrangi, a firebrand leader of a Hindu right-wing outfit.
"The court observed that Kodnani's name never came up in 2002. It was only included after SIT (Special Investigation Team) took over," said special public prosecutor R. C. Kodekar.
"The court also observed that the statement of 11 witnesses against Kodnani were inconsistent, hence she was given benefit of doubt," he said.
Kodnani, who served as women and child development minister in Modi's state government from 2007-2009, was accused by the sentencing judge in 2012 of being "the kingpin of the religious riots".
She was found guilty of murder and other charges including inciting religious hatred over the massacre that occurred in the Naroda Patiya suburb of Ahmedabad.
Modi, who ruled Gujarat for more than 10 years, himself has been dogged by claims that he failed to do enough to stop the riots although a Supreme Court probe has cleared him of any wrongdoing.
He maintains that he moved to end the bloodshed as swiftly as possible.
The Gujarat riots left more than 1,000 people, mostly Muslims, dead in some of India's worst inter-faith violence since independence in 1947.
The rioting began after 60 Hindu pilgrims died in a train fire for which 31 Muslims were convicted in 2011.
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