Kissel was dubbed the "milkshake murderer" and sentenced to life in prison in 2005 after being convicted of giving her high-flying husband, Robert, a sedatives-laced strawberry milkshake and then clubbing him to death with a lead ornament in 2003.
"The court unanimously allows the appeal, quashes the conviction and orders a re-trial," Chief Justice Andrew Li said.
The 45-year-old's three-month trial featured a heady mix of adultery, violence, spying, greed and enormous wealth, gripping the former British colony and even inspiring books and films.
Grisly details emerged in the trial, including that Kissel rolled up her husband's body in a carpet and left it in the bedroom of their luxurious apartment for days before hiring workmen to carry it to a storeroom.
"Mrs Kissel killed Mr Kissel. That much is not in dispute. But was the killing certainly murder or might it have been in self defence?" the court said in its judgment.
The court said it was clear that Kissel concealed her husband's body after the killing.
"But is it certain that she did that to hide a murder? Or might it be that she panicked and tried to hide the fact of the killing even though it had been in self-defence?"
The question is "whether such a jury would inevitably feel sure that Mrs Kissel was lying from start to finish and that she had planned and carried out a coldly calculated murder."
The court, which also held that the prosecutors had made "grossly prejudicial and quite improper" submissions at the trial, ordered Kissel be remanded in custody pending a bail hearing.
Simon Clarke, Kissel's lawyer, told AFP that they were considering asking for a permanent stay of proceedings on the grounds that it would be impossible for Kissel to have a fair trial following media coverage of the case.
"Basically, we are saying "Can the 'milkshake murderer' get a fair trial in Hong Kong?" Probably not," Clarke said.
Kissel could walk free if the court granted the request.
The lawyer added that his client was "psychologically injured by the whole process" and had not decided whether to apply for bail before the re-trial.
Kissel, who wept both before and after the ruling, was "elated', her friends said.
"She's very very happy," her friend Nancy Nassberg told reporters outside court.
"Justice has been served. It's what it should have been a long time ago," said Geertruida Samra, who testified for Kissel at the trial.
Prosecutors had claimed Michigan-born Kissel stood to gain up to $18 million in insurance payouts from the death of her husband, a senior investment banker at Merrill Lynch.
The prosecution also argued that Kissel, a mother-of-three, wanted to take her husband's money and run away with a TV repairman with whom she admitted having an affair in the United States.
Kissel admitted from the witness box that she killed her husband but claimed she was acting in self-defence after he attacked her with a baseball bat on the night of the murder.
She painted herself as a loving but long-suffering wife who had been subjected to regular violent attacks by a husband who abused cocaine and alcohol.
Kissel's last appeal was dismissed in 2008 by the Court of Appeal, which ruled that the case was "as cogent a case of murder as might be imagined."
Robert Kissel's family suffered a further tragedy in 2006, when his brother Andrew was found murdered in his house in Connecticut, bound and with multiple stab wounds. He was reportedly about to plead guilty to bank fraud charges.
The double tragedy inspired the book "Never Enough" by American author Joe McGinniss, who is most famous for his best-selling debut about the 1968 election campaign of Richard Nixon, "The Selling of the President".
It also led to the production of US television movie "Killing Mr Kissel".
(AFP - Friday, February 12)
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