Mr Pasqua, 84, had been jailed for one year over the "Angola-gate" affair, with two more years suspended.
The Paris court also cut the jail terms handed down in 2009 to Israeli-Russian businessman Arkady Gaydamak and French magnate Pierre Falcone in the case.
The case centred on illegal arms sales to Angola during the civil war there.
It was alleged that Soviet bloc arms worth $790m (£474m) were shipped to Angola in murky deals involving politicians and businessmen. In all, 42 people were put on trial.
Falcone's jail term has been cut to 30 months, from the original six years.
Mr Pasqua, a veteran right-wing politician, said Friday's ruling "shatters the entire accusation drawn up and pursued against me". Describing himself as "an old soldier" he said "it would take more than that to destroy me politically".
Mr Pasqua has accused former President Jacques Chirac and some other top politicians of using the scandal to harm his career.
An arrest warrant is still in force against Gaydamak, who is on the run, but his jail sentence of six years was halved.
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