Gaydamak, 61, was detained for 10 days in Champ-Dollon prison before his lawyer, Marc Bonnant, negotiated an agreement with Fernandez’s lawyer, the Tribune de Genève said.
Geneva prosecutor Dario Zanni confirmed that the businessman, a resident of Russia, was freed at 5.45pm, the ATS news agency reported.
“Luis Fernandez withdrew his complaint after an agreement was reached between the two parties,” Zanni said.
Gaydamak allegedly failed to pay Fernandez, an ex-manager of the Paris Saint Germain football club, who coached the Israeli team Beitar Jerusalem from November 2005 to June 2006, according to earlier media reports.
The payment was to have been made in Geneva but Fernandez maintains he never received the money.
Citing Bonnant, the businessman’s lawyer, the Tribune reported that Gaydamak agreed to pay the coach 500,000 francs ($555,000).
The businessman was in Zurich last month to discuss with lawyers a case related to the controversial sale of a phosphates factory in Afghanistan, when he was arrested on November 19th.
Earlier this week a Geneva tribunal denied Gaydamak bail, judging him to be a flight risk.
Gaydamak is also wanted in France for his alleged role in the 1990s Angolagate affair, involving illegal arms sales to the African nation during its civil war.
Upon his arrest in Switzerland, Paris filed an extradition request, after having failed repeatedly to bring him to court.
But it appears the Swiss have not acted on the request.
After his release from jail, Gaydamak left Geneva on board a private plane for Israel, the Tribune de Genève said.
"Angolagate" implicated members of the French political elite including former interior minister Charles Pasqua and ex-president Francois Mitterrand's son, Jean-Christophe Mitterrand.
Pasqua was accused of receiving illegal payments in return for lobbying for a $790 million sale of arms to Angola in the 1990s.
The payments came from two intermediaries, businessmen Gaydamak and Pierre Falcone, for sales including warships, helicopters, tanks and munitions.
Angolan President Jose Eduardo dos Santos and other senior Angolan figures were also accused of receiving kickbacks from the deal.
The resource-rich African nation was locked in conflict for four decades, first fighting colonial ruler Portugal and then, after independence, sliding into civil war in 1975.
Angola was a Cold War battleground, with Soviet and Cuban forces backing left-leaning forces and South Africa lending manpower to their adversaries.
It was fertile ground for arms dealers -- peace only came in 2002, a decade after the Cold War ended.
In October 2009, a French court convicted Gaydamak, who had gone on the run, in absentia for his role in the case and sentenced him to six years in prison.
But in April 2011 a Paris appeals court reduced Gaydamak's sentence to three years and a fine of €375.000 fine, for money laundering and tax fraud.
Gaydamak's appeal was rejected earlier this year.