The constitutional crisis when the Catalan regional government unilaterally declared independence from Spain, leading to the government taking direct rule.
On Thursday, Supreme Court justice Pablo Llarena dropped the sedition charges against Mr Puigdemont and four other separatists because changes to Spanish sedition law means it no longer covers their alleged wrongdoing.
However, the court kept charges of embezzlement and disobedience, it said in a statement.
The separatist leader and his associates, who fled the country five years ago, would likely face trial were they to return, albeit for crimes which carry less severe punishments than sedition.
Mr Puigdemont lives in Belgium where he is a European Parliament member.
Spain’s efforts to have him extradited have failed so far. It is unclear if the dropping of sedition charges could make it more likely he is extradited.
Last month, Spanish lawmakers approved controversial reforms to the crimes of sedition and embezzlement in a bid by Spain’s ruling centre-left coalition to retain the parliamentary support of a pro-independence Catalan party and ease tensions in the wealthy north-eastern region.
Sedition and embezzlement were among the main charges against nine of 12 pro-independence Catalan activists and politicians who were convicted over their roles in a unilateral declaration of independence from Spain in October 2017 after an illegal secession referendum earlier that month.
The country’s Prime Minister Pedro Sanchez issued partial pardons for the nine separatists last year, releasing them from prison in Spain after they had spent three years behind bars serving sentences between nine and 15 years.