Hakamada was convicted of killing a company manager and his family and setting fire to their home, where he was a live-in employee.
Prosecutors have four days to appeal the court's decision.
Amnesty International said it hoped there would be no appeal. "It would be most callous and unfair of prosecutors to appeal the court's decision. Time is running out for Hakamada to receive the fair trial he was denied more than four decades ago," said Roseann Rife, East Asia Research Director at Amnesty International.
"If ever there was a case that merits a retrial, this is it. Hakamada was convicted on the basis of a forced confession and there remain unanswered questions over recent DNA evidence."
Hakamada confessed after 20 days of interrogation by police. He retracted the confession during the trial and told the court police had beaten and threatened him.
His lawyers said recent forensic tests show no match between Hakamada's DNA and samples taken from clothing the prosecution alleges was worn by the murderer.
One of the three judges who convicted Hakamada has publicly stated he believes him to be innocent.
Iwao Hakamada has spent 48 years behind bars and was sentenced to death in 1980. Photo / AP