Pierre and Danielle Le Guennec were given two-year suspended jail sentences in 2015 for possession of stolen goods, in a case that made headlines worldwide.
A higher court upheld the verdict in 2016 but the Cour de Cassation, in a ruling seen by AFP Thursday, overturned it.
Ruling there was insufficient evidence that "the goods held by the suspects had been stolen" the court ordered a retrial.
The couple's lawyer Antoine Vey hailed the ruling.
"It's a great decision which reinforces the line that Le Guennecs have always upheld -- that there was no theft whatsoever."
The retrial will offer them "a huge opportunity to finally establish the truth", Vey said.
The collection, whose value has not been assessed, includes drawings of women and horses, nine rare Cubist collages from the time Picasso was working with fellow French artist Georges Braque and a work from his famous "blue period".
At his original trial Le Guennec, who is in his late seventies, claimed that Picasso had presented him with the artworks towards the end of his life to reward him for his loyal service.
But he later changed his account, telling the appeal court that the works were part of a huge trove of art that Picasso's widow Jacqueline asked him to conceal after the artist's death in 1973.
Le Guennec said he stored more than a dozen garbage bags of unsigned works which Jacqueline later retrieved, except for one which she left him saying: "Keep this, it's for you."
The affair came to light when Pierre Le Guennec attempted to get the works authenticated by Picasso's son Claude Ruiz-Picasso in 2010.
The artist's heirs promptly filed a complaint against him, triggering an investigation.