In a ruling that followed five months of dramatic, often painful trial testimony, a three-judge court said prosecutors, who had demanded the death penalty, failed to prove that the Sewol's captain Lee Jun-Seok, 69, had acted with an intention to kill.
However, he was convicted of gross negligence and dereliction of duty, including abandoning his vessel while hundreds of passengers -- most of them schoolchildren -- remained trapped on board.
Victims' relatives who were present in the courtroom in the southern city of Gwangju, reacted furiously to the murder acquittal.
"Where is the justice?" one woman shouted at the judges, while others wept openly.
"It's not fair. What about the lives of our children? They (the defendants) deserve worse than death," screamed another.
Three other senior crew members, who had also faced homicide charges, were sentenced to jail terms of between 15 and 30 years.
"We find it hard to conclude that the defendants ... Were aware that all of the victims would die because of their actions," Judge Lim Joung-Youb said in announcing the verdict.
"Therefore the murder charges are not accepted."
However, Lim stressed that had Lee and his crew acted properly as soon as the Sewol ran into trouble, then many lives might have been saved.
"They did not honor their responsibility to protect passengers and abandoned them. As a result, countless lives were lost," he said.
Lee and his crew were publicly vilified in the wake of the April 16 disaster and some legal experts had raised doubts over whether they would receive a fair hearing.
South Korean media coverage was often coloured by a presumption of guilt and before the trial even began President Park Geun-Hye publicly stated that the crew's actions had been 'tantamount to murder'.
As well as abandoning the ship, they were condemned for instructing passengers to remain where they were as the vessel began to list dangerously.
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