The US is to drop its charges against Gen Salvador Cienfuegos Zepeda, Mexico’s defence secretary from 2012 to 2018, who was accused of drug trafficking and laundering money.
He was arrested at Los Angeles airport last month.
Prosecutors said he had links to the “extremely violent” H-2 drug cartel, the BBC reported on Wednesday.
But on Tuesday the US Department of Justice said it would seek to dismiss the charges so he could be investigated and possibly charged under Mexican law.
The 72-year-old pleaded not guilty to the charges last month. He was due to appear in US federal court in New York on Wednesday before the news broke.
US Attorney General William Barr and Mexico’s Fiscal?a General Alejandro Gertz Manero issued a joint statement about Gen Cienfuegos on Tuesday.
It said the US had taken the decision to seek dismissal of charges “in recognition of the strong law enforcement partnership between Mexico and the United States, and in the interests of demonstrating our united front against all forms of criminality”.
Prosecutors wrote in a court filing that “sensitive and important foreign policy considerations outweigh the government’s interest in pursuing the prosecution of the defendant… and therefore require dismissal of the case”.
Gen Cienfuegos served under former President Enrique Pe?a Nieto. As the most senior member of Mexico’s armed forces he played a major role in the country’s war on drugs, which has claimed tens of thousands of lives.