Home Minister Syed Hamid Albar said Buhary Syed Abu Tahir remained in the country and would be monitored.
"He is not a threat. The recommendation for him is to be released but he is a subject for us to watch over," Syed Hamid told reporters.
"Four years he has been inside, I think we have investigated what we need to investigate," he said.
The Star newspaper said that Tahir, who has permanent residency status in Malaysia, was released on June 6 and is under restrictions including a ban on going out at night without permission.
He must also report to police weekly.
Tahir was described by US President George W.
Bush in 2004 as the "chief financial officer and money launderer" for Pakistan's disgraced scientist Abdul Qadeer Khan.
Khan admitted passing nuclear secrets to Libya, Iran and North Korea in a televised confession in February 2004, placing him in the thick of a global atomic black market.
Tahir was arrested in May 2004 in the Malaysian capital Kuala Lumpur under