The action is extremely rare, as this mea culpa by the government comes after prosecutors had already won a conviction in the high-profile case.
"After careful review, I have concluded that certain information should have been provided to the defense for use at trial," Holder said in a statement. "In light of this conclusion, and in consideration of the totality of the circumstances of this particular case, I have determined that it is in the interest of justice to dismiss the indictment and not proceed with a new trial."
A federal jury in Washington convicted the then-lawmaker, 85, on corruption charges last October, just days before Stevens lost a reelection bid. The prosecution charged that Stevens lied on his Senate financial disclosure forms, in effect concealing $250,000 worth of gifts and home renovations from a wealthy oilman, Bill Allen, and his oil services company, Veco.
Stevens, who was appointed to the Senate in 1968 and elected in 1970, is the longest-serving Republican senator. He has been awaiting sentencing as his defense team appealed the verdict.
Defense lawyers had throughout the trial accused the prosecution of misconduct, including withholding evidence, and the judge presiding over the trial had repeatedly admonished the government team.
One of the key allegations is that prosecutors might have tried to make certain that a witness who would have been useful to the defense never testified. A whistleblower at the FBI supported the defense claim in a complaint filed in December.
And there have been other explosive allegations since the trial ended, including that the lead FBI agent on the case might have a had inappropriate relationship with Allen, the government's star witness, and that the agent was allegedly telling potential witnesses about grand jury information before trial.
During the trial, prosecutors fended off several requests for a mistrial filed by Stevens' attorneys. Lead prosecutor Brenda Morris admitted to some mistakes in court, and said that her team was "not taking this lightly."
Stevens attorneys Brendan Sullivan Jr. and Robert Cary released a statement saying they're "grateful" for Holder's decision, adding that the decision "is justified by the extraordinary evidence of government corruption in the prosecution" of the former lawmaker.
In a separate statement, Stevens said in part, "I always knew that there would be a day when the cloud that surrounded me would be removed. That day has finally come."
"It is unfortunate that an election was affected by proceedings now recognized as unfair," he added. "It was my great honor to serve the State of Alaska in the United States Senate for 40 years."
In their comments, defense attorneys also eviscerated the trial prosecutors' actions, claiming that the "jury verdict was obtained unlawfully" and that the "misconduct of government prosecutors, and one or more FBI agents, was stunning."
"This case is a sad story and a warning to everyone," the statement added. "Any citizen can be convicted if prosecutors are hell-bent on ignoring the Constitution and willing to present false evidence."