Seven prosecutors said in a joint report that the men were either mistakenly identified as Abu Sayyaf militants or may have been members of the al-Qaida-linked group but played no role in the kidnappings, based on available evidence.
Membership in the Abu Sayyaf and other suspected terror groups is not outlawed in the Philippines.
At least two of the suspects have been detained for more than two years, while most others were captured last year, according to Peter Ong, a prosecutor who recently carried out a new investigation after many suspects insisted on their innocence.
A judge must now approve the release of the suspects.
While the Abu Sayyaf committed the kidnappings and beheadings, "we note the indiscriminate arrests of alleged members of the ASG, even those who did not participate in the kidnappings," the prosecutors said. ASG is an acronym for the Abu Sayyaf Group.
Two other suspects detained in connection with the kidnappings have been identified as being among the kidnappers. Those two are still being held by authorities and will face trials, the prosecutors said.
The victims, all members of the religious sect Jehovah's Witnesses, were peddling cosmetics in a community in rural Patikul township when they were abducted in Aug. 2002 and taken to the Abu Sayyaf's jungle encampments. Two of the victims were beheaded by the militants and four eventually escaped, the prosecutors said.
The Abu Sayyaf, which is on a U.S. list of terrorist organizations, has been blamed for bomb attacks, kidnapping sprees and beheadings.
The Abu Sayyaf was founded in 1991 on southern Basilan island with funds and training believed to come from Asian and Middle Eastern radical groups, including al-Qaida. It came to U.S. attention in 2001 when it kidnapped three Americans, one of whom was beheaded, along with dozens of Filipinos.