Knox's sister, Deanna, told reporters: "We are grateful Amanda's nightmare is over. She suffered for four years for a crime she did not commit.
In the United States, the State Department reacted to the verdict saying it appreciated the "careful consideration" of the case in the Italian courts.
Knox's friends in Seattle cheered and wept as they watched the verdict live on television.
Pamela Van Swearingen, a Seattle lawyer who became involved to explore what legal options Knox might have, added: "I'm just so grateful. I'm surprised yet not surprised, just grateful."
But outside the courtroom in Perugia an angry crowd of hundreds of local residents gathered and there were shouts of: "Shame! Shame!" and "Murderers!"
Some heckled Knox's lawyers and one man shouted: "They're guilty!"
Although she was cleared of murder and sexual assault, Knox was found guilty of slander for incriminating the owner of a bar where she worked as a waitress in her first interrogation just days after the November 1, 2007 murder.
She was sentenced to time already served and will have to pay compensation to the unjustly accused man, Patrick Lumumba, as well as his legal fees.
"We have won the battle, but not the war," said one of Knox's lawyers, Luciano Ghirga, as prosecutor Giuliano Mignini promised to lodge an appeal with Italy's highest appeal court to "ensure that justice is done."
Should the prosecution team launch a final appeal, as appears likely, it would probably have to be held in absentia as the US does not normally extradite its citizens abroad for prosecution.
The 21-year-old Kercher was found half-naked in a pool of blood on the floor of her bedroom in the cottage she shared with Knox. Her body was covered in knife wounds and bruises and investigators found traces of a sexual assault.
At the original trial Knox was sentenced to 26 years in prison for the murder and Sollecito to 25 years.
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