Mr Rancadore, known as The Professor, was arrested after evading Italian authorities for 20 years.
They accused him of fleeing Italy as he faced trial over his alleged Cosa Nostra "man of honour" connections.
Senior District Judge Howard Riddle discharged Mr Rancadore at Westminster Magistrates' Court today.
Mr Rancadore was convicted in 1999 of Mafia association and extortion in Trabia, near Palermo, and is wanted to serve a seven-year jail sentence.
A travel agent with alleged mafia links will find out if he is to be extradited to Italy later.
Police say that Domenico Rancadore has been running a travel agency in London since 1993.
He was denied bail following his arrest at him home in Uxbridge, last year after the authorities claimed he had been living under false name for more than 20 years.
Italian prosecutors allege he was a leading figure in the Sicilian mafia who 'systematically murdered anyone who didn't agree with the organisation'.