The 2007 conviction of Dogu Perincek, an Ankara-based chairman of the Turkish Workers' Party, on charges of racial discrimination was "unjustified", the judges said.
Perincek, now aged 71, had been fined by a Lausanne court that found in favour of a Switzerland-Armenia association that complained about remarks he made as several Swiss conferences in 2005.
But the European Court of Human Rights determined that Perincek's description of the Armenian genocide as an "international lie" fell within his right to expression.
Armenians say up to 1.5 million of their kin were systematically killed during World War I under the Ottoman Empire, the predecessor of modern Turkey.
But Turkey holds a different view, saying 500,000 died in fighting and of starvation. It categorically rejects the term genocide.
The Strasbourg-based judges noted that they were not called upon to address the veracity of the 1915 killings of Armenians or the characterisation of them as genocide.
The European court's judges in the Perincek case is not final. In the next three months any of the parties could request a referral to the court's Grand Chamber, but it is up to the court to decide whether the case deserves further examination.
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