The Madrid court ruled that Eduardo Vela could not be legally convicted because Ines Madrigal, who was taken from her biological mother in 1969, waited too long to file a complaint against him.
Madrigal, now 49, said she would appeal the decision at the Supreme Court.
She is one of thousands of babies who were removed from their mothers during and after General Francisco Franco's 1939-1975 rule in what became a nationwide scandal.
The mothers were told their babies had died after birth and the newborns were adopted by infertile couples, preferably close to the far-right regime, often with the help of the Catholic Church.
“It's bittersweet,” Madrigal told reporters at the courthouse.
“We must use this decision as a trampoline… to get to the Supreme Court.”
Vela, who used to run a clinic, was the first to stand trial for involvement in the baby trafficking scandal.
Prosecutors wanted the 85-year-old jailed for 11 years.
But the court decided to “absolve” him even if they considered him the “perpetrator of all the offences” of which he was accused.
These included falsifying documents, illegal adoption, unlawful detention and certifying a non-existent birth.
The court found that under Spanish law, after she turned 18 in June 1987, Madrigal had a legal deadline of 10 years to file a complaint for unlawful detention.
Madrigal though says she only found out in 2010 that she was a “stolen baby” and filed her complaint two years later.
As such, Madrigal's lawyer Guillermo Pena argued that the deadline did not apply in Madrigal's case given she was not aware at the time that she was a “stolen baby”.
But this was over-ruled by the court.
Campaigners call for justice outside court on the first day of the trial in June. Photo: AFP
The baby-stealing practice began after Franco came to power following the 1936-39 civil war.Initially, newborns were taken from leftwing opponents of the regime.
Later, the practice was expanded to supposedly illegitimate babies and those from poor families.
Perpetrators wanted the children to be raised by affluent, conservative and devout Roman Catholic families.
Even after Spain transitioned to democracy following Franco's death in 1975, the illegal trafficking went on up to at least 1987.
Campaigners estimate tens of thousands of babies may have been stolen from their parents over the decades.
Vila was accused of falsifying documents, illegal adoption, unlawful detention and certifying a non-existent birth.
During the trial, he said he could not remember details about the operation of the clinic, which he ran for 20 years up to 1982.
Clinic records torched
Retired doctor Eduardo Vela, 85, is pushed on a wheelchair as he arrives at a provincial court in Madrid, on June 26, 2018. Photo: AFP
A policeman who probed the case and testified in court said the clinic was a centre for baby trafficking.
He said Vela had burnt the clinic's archives.
The policeman said Vela was part of a “plot” to take babies from single mothers in shelters often run by religious orders.
Emilie Helmbacher, a French journalist, also testified by video conference.
In an investigation in Madrid in December 2013, she used a hidden camera to record Vela as he appeared to confess to having given Madrigal away as a “gift” in June 1969.
Vela's lawyer Rafael Casas criticised the hidden camera recording. He said his client had “nothing to do” with the alleged deeds.
By AFP's Marianne Barriaux