The moves came the day after two young women appeared in court charged with murdering the estranged half-brother of North Korean leader Kim Jong-Un with a banned nerve agent.
Attorney general Mohamed Apandi Ali said 47-year-old Ri Jong-Chol would be released and deported on Friday.
"He is a free man. His remand expires and there is insufficient evidence to charge him," Apandi said.
"He has no proper [travel] documents so we will deport him."
Seven other North Koreans are wanted in connection with the killing, including a diplomat and an airline employee who are believed to be in Malaysia.
Four others are thought to have fled to Pyongyang on the day of the murder.
Ri was arrested days after Kim suffered an agonising death when he was attacked at Kuala Lumpur International Airport as he waited to board a flight to Macau.
CCTV footage shows two women approaching the heavyset 45-year-old and appearing to thrust a cloth in his face.
Police say he suffered a seizure and died less than 20 minutes later, without reaching hospital.
Swabs of the dead man's face revealed traces of the VX nerve agent, a synthetic chemical so deadly that it is classed as a weapon of mass destruction.
Indonesian Siti Aisyah, 25, and Doan Thi Huong, 28, from Vietnam, were charged with murder on Wednesday. If found guilty, they could be hanged.
Both women say they thought they were taking part in a prank video but police have dismissed the claims.
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North Korea diplomat wanted over Kim killing: Malaysia
Visa waiver
South Korea has consistently pointed the finger of blame at North Korea, citing what they say was a standing order from Kim Jong-Un to kill his exiled half-brother.
Pyongyang -- which has never acknowledged Kim's identity -- has denied the charge and disputes the autopsy, claiming Malaysia is in cahoots with its enemies.
The two countries, which had enjoyed relatively warm relations, have been at diplomatic daggers drawn since the killing.
On Thursday Kuala Lumpur -- which had earlier recalled its ambassador -- said it was cancelling its visa-free travel deal with Pyongyang.
The government was implementing the change on the grounds of national security, Malaysian news agency Bernama quoted deputy prime minister Ahmad Zahid Hamidi as saying.
North Korean Ri Jong-chol, who was arrested in connection with the death of Kim Jong-nam, in Kuala Lumpur, Malaysia. Source: AAP
The cancellation will take effect on March 6, after which North Koreans entering Malaysia will be required to obtain a visa, the report added.
"We are not looking for enemies but if they use Malaysia as a platform to carry out their agenda, they should not accuse Malaysia and tarnish our image on the international diplomatic front," Ahmad Zahid told a public event.
"We will act firmly to guarantee the safety of the people. Do not think you can use Malaysia to do what you want to do. Do not use Malaysia to carry out your illegal activities," he added.
Malaysia was one of only a tiny handful of countries around the world that had such a visa waiver scheme with North Korea.
'Downgrading ties'
A senior Malaysian official told AFP that the government was mulling further "downgrading diplomatic ties" with North Korea.
"Malaysia is considering shutting down its mission in Pyongyang," he said, as well as the expulsion of the North Korean ambassador following his "baseless allegations", a reference to accusations of bias in the murder probe.
Malaysia formally established diplomatic relations with North Korea in 1973 and opened an embassy in Pyongyang in 2003.
It has provided a channel between Pyongyang and the wider world in recent years, with Kuala Lumpur serving as a discreet meeting place for talks between the regime and the United States.
Up to 1,000 North Koreans currently work in Malaysia and, like expats worldwide, their remittances are a valuable source of foreign currency for the isolated regime.
It is not clear how widely known Kim's fate is at home, but on Thursday South Korean activists said they will send millions of leaflets about his murder across the border by balloon.
They said the text on them would describe the North's leader as "a devil who killed his own brother".
