The sentence was dropped after the family of Mohammed al-Hazim, 26, accepted one million riyals (USD 270,000) in compensation from the family of convicted Ali Khawahir, 24, Al-Watan daily reported.
A court in the eastern city of Al-Ahsa had registered a waiver by the plaintiff's family, and would now proceed with the release of Khawahir, who has already spent 10 years in jail.
Last month Amnesty International said Khawahir had reportedly been sentenced to Qisas, or retribution, and could be paralysed from the waist down if he failed to pay compensation.
But the Saudi justice ministry categorically denied the court had passed the verdict, saying on Twitter the judge had dismissed demands for the sentence.
A ministry spokesman also told AFP reports of the sentence that were "false."
Amnesty said a Saudi court had passed another sentence of paralysis in 2010, but it was unclear if it had been carried out.
The ultra-conservative Muslim kingdom imposes several forms of corporal punishment attributed to Islamic sharia law, ranging from flogging to amputation and beheading.
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