Update at 2:05 p.m. ET: Secretary of State Hillary Rodham Clinton says the United States did not pay compensation to the Pakistani families, Reuters reports. Asked today by reporters in Cairo who did, she replied, "You will have to ask the families." Asked whether it was paid by the Pakistani government, she said, "You will have to ask the Pakistanti government."

Update at 10:40 a.m. ET: The U.S. Embassy in Lahore confirms that Davis has been pardoned and says U.S authorities will investigate the killings.

Update at 10:16 a.m. ET: CNN quotes a lawyer closely connected to the case as saying the families of the victims were paid $1.4 million in compensation.

Earlier posting: A Pakistani court has acquitted an American CIA contractor of two murder charges and freed him after the victims' family received "blood money" and pardoned him.

Raymond Davis, 36, had been charged with shooting to death two men in Lahore in January during what he said was an attempted armed robbery.

Punjab Law Minister Rana Sanaullah said he has been released, according to DawnNews.

"He has been released from jail. Now it is up to him. He can go wherever he wants," the provincial law minister said.

In pardoning Davis, the relatives acknowledged to the court today that they had received "blood money," or compensation for the deaths, a common practice in Pakistan for settling disputes.

The dispute had touched off a diplomatic row with the United States, which claimed Davis was protected by diplomatic immunity.