The British businessman Shrien Dewani has been cleared of murdering his wife in an elaborate taxi hijack plot on their honeymoon in South Africa.

The Cape Town judge Jeanette Traverso declared Dewani to be not guilty of charges that he coordinated Anni Dewani’s 2010 murder.

Anni’s family said the verdict left more questions than answers and that they were exploring legal avenues for suing Dewani in the UK in connection with the killing.

In the Cape Town courtroom, Traverso ruled that evidence meant to connect the Briton to his wife’s death was so poor that the only way Dewani might be convicted was if he confessed.

She said the prosecution case rested entirely on the witness testimony of a “self-confessed liar” who “does not know where the truth ends and a lie begins”. The judgment, which cannot be appealed, effectively means that Dewani, 34, was framed for his wife’s murder.

The case will be hugely embarrassing for the South African authorities, which spent four years fighting to bring the Briton to justice. It also raises worrying questions for the country’s criminal justice system and its use of plea bargains.Standing in Cape Town’s high court dock, in black suit and tie, Dewani, from Bristol, showed no emotion as Traverso delivered her two-and-a-half-hour-long verdict. His parents, Prakash and Shila, sister Preyal and brother Preyen all shed tears.

Anni’s family, who have previously given vocal backing to Dewani’s prosecution, sat in stunned silence.

Ami Denborg, Anni’s sister, said in a statement following the verdict: “All we wanted was to hear all the events – the hope of finding that out has kept us as a family going. We feel that right has been taken away from us. We feel really, really sad because we never heard the full story of Shrien.

“We just wish that Shrien had been honest with us and especially with Anni. We’ve had four years of sleepless nights – will we ever be able to sleep? This is a really sad day for us and we hope no other families will have to go through what we’ve been through.”

Nina Hindocha, Anni’s aunt, and uncle Ashok Hindocha said they would consult lawyers to determine whether there are grounds for them to sue Dewani in the UK over her death.

In a statement, they said: “Anni was very, very special … to all who knew and loved her. With the end of the case against Shrien Dewani, our family returns home with more questions than answers, and more sleepless nights. We … will always live without ever knowing the complete events which led up to Anni’s death.”

Dewani’s family are not expected to make a statement on Monday.

Traverso, the second most senior judge in Cape Town, discharged the case after hearing six weeks of prosecution evidence, and before the defence had started to make its case. Agreeing with the defence’s argument that the prosecution’s 16 witnesses had failed to provide sufficient evidence to link Dewani to the murder, she ruled that Dewani had no case to answer.

The state’s case rested on the witness testimony of three men who admitted involvement in Anni’s murder. Traverso said their testimony was “so riddled with contradictions, mistakes, lies and inconsistencies that I can all but ignore them”.

In particular, she said the testimony of Zola Tongo, the driver of the taxi in which Anni was killed, was “conflicted in virtually every material respect and in places made no sense”.

On 13 November 2010 a taxi carrying Anni, 28, and her husband of two weeks was hijacked in the Cape Town township of Gugulethu. The two hijackers robbed the couple, ejected Dewani and the driver from the vehicle and shot Anni once in the side of the neck, the court heard. She was found the following morning in the abandoned Volkswagen Sharan people carrier.

Police initially considered Dewani to be a victim, but quickly changed their minds. Three suspects confessed to their involvement and claimed Dewani commissioned and paid for the murder. Each struck deals for their testimony, with one self-confessed killer gaining immunity from prosecution.

Friends of the Dewani family in Bristol said they were delighted he had been cleared. Pankaj Pandaya, an old family friend who knows the Dewanis through the Bristol Hindu temple, has always maintained that Shrien is “150% innocent” and describes him as intelligent, respectable and religious.

Reacting to the verdict, he said: “I’m pleased, obviously. I can’t comment about what his future might be, but he’ll certainly be accepted back into the community here.”

Another family friend, Margaret Stewart, said: “It’s been a very traumatic time for the family. It’s been four years of their lives. He [Shrien] has also been trying to grieve in that time.”

Dewani is expected to return to Britain as soon as possible.