French law enforcement sources had identified the man in detention as Khaled Aedh Al-Otaibi, the same name as a former member of the Saudi Royal Guard listed in U.S. and British sanctions documents and a U.N.-commissioned report as having been involved in Khashoggi's killing in Turkey.
The Saudi Embassy in Paris had said late on Tuesday the arrested person "has nothing to do with the case in question."
Prosecutors said checks had shown that an arrest warrant issued by Turkey did not apply to the man. Earlier, a police source said he had been detained when a scan of his passport triggered an alert.
"Extensive checks on the identity of this person showed that the warrant did not apply to him... he was released," the statement from the prosecutor's office said.
The Saudi national had been visiting Paris with a friend and held a valid visa for France, a source familiar with the matter said after the man's release. He shared the same first name and family name as al-Otaibi, but not the same patronymic name. Nor did his passport number match the wanted suspect's passport number, the source added.
Khashoggi, a Washington Post journalist and critic of Saudi Arabia's de facto ruler, Crown Prince Mohammed bin Salman, was last seen entering the Saudi Consulate in Istanbul on Oct. 2, 2018. Turkish officials believe his body was dismembered and removed. His remains have not been found.
A senior French police official said he was baffled by events. The man held overnight had made several European trips in past months and entered France in November without issue, he added, requesting anonymity because of the sensitivity of the matter.
When news of the arrest in Paris first broke, rights groups and Khashoggi's fiancee had expressed relief that such a high-profile suspect had been caught.
A 2019 U.N. investigation report said Al-Otaibi was a member of a 15-man Saudi team involved in killing Khashoggi after the journalist went to the Saudi Consulate in Istanbul to obtain a document to allow him to marry his fiancee.
The arrest had come at a sensitive time for the countries involved.
President Emmanuel Macron had days earlier become the first major Western leader to hold face-to-face talks with Prince Mohammed in the kingdom, a major buyer of French arms, since Khashoggi's murder.
Macron considers Saudi Arabia vital to help forge a region-wide peace deal with Iran, as well as an ally in the fight against Islamist militants from the Middle East to West Africa, and a rampart against the Muslim Brotherhood.
Turkey initially sought to pile international pressure on Prince Mohammed after Khashoggi's murder, saying the order had come from the highest level of the Saudi government, but Ankara has recently appeared to favour mending relations.