Domenico Rancadore had been living in Uxbridge, west London, for 20 years when he was arrested for allegedly fleeing justice in Italy.
Known as "The Professor", he was convicted in 1999 of Mafia association and extortion in Trabia, near Palermo, Sicily, and sentenced to seven years in prison.
However, senior district judge Howard Riddle has now discharged Mr Rancadore at Westminster Magistrates' Court.
Mr Riddle told the court he had originally intended to extradite Mr Rancadore.
Domenico Rancadore's home in Uxbridge But he changed his mind following a ruling in a similar case involving the Court of Florence and Hayle Abdi Badre.
Mr Riddle said: "The judgment of the administrative court is binding on me.
"The higher court accepted that a similar assurance given in that case was in good faith, but was not sufficient."
He added: "I cannot distinguish this case from Badre.
"While it is true that I heard more up-to-date evidence than was available to the court in that case, my intended decision, as expressed above, was based squarely on my acceptance of an assurance that has recently, and in similar circumstances, been rejected by a higher court."
Mr Rancadore's wife Anne Skinner (left) and daughter Daniela In the case of Badre, the High Court written judgement said: "...the assurance in this case is insufficient to persuade me that, if the Appellant were returned to Italy, he would not face the risk of being exposed to prison conditions that would breach his Article 3 rights".
Mr Riddle said he was satisfied the European Arrest Warrant against Mr Rancadore was valid and that extradition was "compatible with the defendant's Convention rights, including prison conditions".
He also said he believed he was satisfied Mr Rancadore's wife and daughter had known he was a fugitive "for some time".
Outside court, Mr Rancadore's solicitor, Karen Todner, said: "We're all delighted and relieved.
"He's got a serious heart condition so being in prison is very difficult for him."
Mr Rancadore was expected to be bailed pending an appeal.
At an earlier hearing, the former travel agent - who had been using the name Marc Skinner - told the court he had come to England for the sake of his two children as he feared for their life in Italy.
He said: "I changed my name, I changed my life, I didn't want to go back to Italy."
His wife, Anne Skinner, told the court she had seen a deterioration in her husband's health since his arrest.
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