The high profile abduction drew international attention amid growing concern over the threat posed by radical Islamic terrorism.
Assailants later filmed Pearl's beheading and sent it to United States officials. It was among the first propaganda videos targeting hostages created by extremists, and helped to inspire other terror groups to film horrific and egregious acts of violence.
Four men were arrested in 2002, and convicted of the kidnap and murder of Pearl. One, British national Ahmed Omar Saeed Sheikh, was given the death penalty.
But in April last year, a high court in Sindh province, where Karachi is located, re-examined the case after it was revealed that investigators did not follow lawful interrogation procedures.
Pakistan's Supreme Court on Thursday upheld that decision, ruling against appeals by both the Pearl family and Pakistani authorities.
Matt Murray, editor-in-chief of the Wall Street Journal, described the ruling as "infuriating and unjust," a sentiment echoed by the Biden administration and Pearl's family.
White House press secretary Jen Psaki on Thursday said the US was "outraged" by the decision, which she called an "affront to terrorism victims everywhere, including in Pakistan."
US Secretary of State Antony Blinken said in a statement that the United States was prepared to prosecute Sheikh in the US. "We expect the Pakistani government to expeditiously review its legal options to ensure justice is served," he added.
Pearl's father, Judea Pearl, told CNN that family members "were in shock and total disbelief," at the majority decision, which he described as "a crime against humanity, against journalism, against the core of our civilization. So we are very shocked and hope some steps will be taken to correct for this injustice."
He added that they are asking the US State Department and Department of Justice to "pursue vigorously a request for extraditing Omar [Saeed] Sheikh for this crime as well as other [crimes] he's committed against US citizens -- and we hope the Pakistani court and government will respond positively to such requests."
Pearl's father described the acquittal as a "message of impunity for would-be terrorists and would-be abductors... around the world."
In a statement Thursday, acting US Attorney General Monty Wilkinson said that the US was "ready" to take custody of Sheikh to put him on trial in the US. "He must not be permitted to evade justice for his charged role in Daniel Pearl's abduction and murder," the statement said.
The four men, who are still in detention following the court's ruling, have been placed on the country's exit control list, barring them from leaving the country, according to Pakistan's interior ministry.
CNN's Nikki Carvajal, Jonny Hallam, Hira Humayun, and Shawn Paik contributed reporting.