The decision follows reports of a decision by Iran's supreme leader, Ayatollah Ali Khamenei, that a speech by Aghajari which triggered the death sentence cannot be considered apostasy.
Aghajari, a history professor at Tarbiat Modaress University in Tehran and a disabled veteran of the Iran-Iraq War, was convicted of blasphemy in November 2002 for a speech in which he called for "religious renewal" within Iran's clergy.
Aghajari in the speech said Muslims were not "monkeys" who should blindly follow senior clerics. A number of conservatives in Iran viewed such comments as a direct challenge to the country's Islamic establishment.
The verdict sparked mass student protests, with thousands of young Iranians throughout the country calling for his release.
Iranian President Hojatoleslam Mohammad Khatami and Iran's then-reformist parliament likewise denounced the decision.
The death sentence sparked also international outcry, with several human rights groups calling on Iran's judiciary to drop all charges and release Aghajari.
The wave of protests prompted the supreme leader to order a review of the court decision.
Aghajari's sentence was sent back to the provincial court that handed down the original conviction. But the court recently announced the conviction and the sentence had been upheld.
Aghajari himself has refused to appeal his sentence. Some observers doubted Iranian authorities would carry out the execution in the end, saying the case highlighted the power struggle between conservatives and reformists in Iran's government.
Hossein Bagherzadeh, a London-based human rights activist who closely follows events in Iran, said: "It seems that the whole case has been political from the very beginning. Mr. Aghajari seems to have been used as a pawn in the struggle between the two factions of the government. And it seems that, now that the election has been won by the conservatives and the reformists have been barred from the Majlis [parliament], that Aghajari's case has served its purpose, and that maybe that's the reason why they have decided to revoke the sentence."
Aghajari's lawyer, Saleh Nikbakht, today said he has not yet been informed of the Supreme Court decision. But he said his client is likely to remain in prison for convictions on other charges, including the spreading of lies and inciting public opinion.
Aghajari, who lost a leg during the Iran-Iraq War, was sentenced on those convictions to eight years in prison, 74 lashes, and a 10-year ban on teaching activities.
Bagherzadeh told RFE/RL he is relieved by the news of the death-penalty revocation. But he said Aghajari's case is a bitter reflection of the workings of Iran's judiciary: "The question remains: Why had this gentleman been put in prison for his beliefs for the last 22 months, and why has he been threatened with the death sentence, and why is he still going to be kept in prison for other charges? So the whole saga is quite a shameful event which has happened in the Islamic Republic and I think it is against all principles of human rights."
Iran's judiciary spokesman said today Aghajari's case is still due to be fully reviewed by a court in Tehran according to a Supreme Court request.