Service manager Gabriele Tadini was put under house arrest, while technical director Enrico Perocchio and the head of the cable car operating company, Luigi Nerini, were released.
All three remain under investigation for the tragedy.
In Italy, judges must approve continued detention of suspects and usually order pre-trial detention only under special circumstances, like when the accused is a flight risk.
The three men were detained Wednesday May 26th after Tadini admitted to investigators that he had deactivated an emergency brake system that could have prevented the tragedy.
He said he did it because the system was malfunctioning and had halted service several times, and insisted that he acted in agreement with the two other suspects.
But judge Donatella Banci Bonamici found a “total lack of evidence against Nerini and Perocchio,” according to a ruling quoted by the Corriere della Sera newspaper on Sunday.
According to the judge, Tadini tried to shift some of the blame on his two superiors after acting “with total disregard for human life, with bewildering carelessness.”
Prosecutor Olimpia Bossi said she would “carefully assess” the judge’s ruling, noting that it could be appealed, and said it would not derail investigations. “The suspects remain the same, our work goes on,” she told reporters.
The cable car crashed near the top of the Mottarone mountain on May 24th, after its pull cable snapped and the car flew backwards, dislodging itself from a second, supporting cable.
Had the emergency brake worked, the car would have remained hanging on the supporting cable. Investigators are still trying to ascertain why the first cable broke.
The accident left a five-year-old boy from an Israeli family who lived in Italy as the only survivor. He lost his parents, younger brother and great-grandparents.
Another five-year-old boy died with his parents. The other fatalities were a woman who was celebrating her 40th birthday with her husband and two couples in their 20s.
The Mottarone mountain served by the cable car is a popular tourist location, as it offers scenic views of Lake Maggiore and of the more distant Alps.
The northwestern region of Piedmont, where the accident happened, declared a day of mourning on Sunday, and urged its residents to observe a minute of silence at noon, local time.