Journalist Åsne Seierstad on Wednesday welcomed the court's ruling, which overturned a July 2010 order to pay 125,000 kroner ($20,200) in damages to Suraia Rais, the bookseller's second wife.
Written in the style of a novel, "The Bookseller of Kabul" is an account of Seierstad's time living with the family of Mohammed Shah Rais in Kabul shortly after the fall of the Taliban in 2001.
The appeals court ruled on Tuesday that Seierstad had indeed revealed aspects of the family's private life, but that this did not contravene the law.
"I am very happy to have won and to be finished, so to speak, with this affair," she told AFP.
"It is a clear verdict: unanimous and amounting to a discharge on all the points," the writer added, insisting she had respected journalistic and ethical rules in penning the book.
Rais' lawyer, however, said he would lodge an appeal to Norway's Supreme Court.
The book was originally released in Norwegian in 2002, a year before it appeared in English and became an international bestseller, being translated into about 40 languages.
The Oslo district court had ruled last year that "the information (in the book) about Rais's thoughts and feelings is sensitive".
Seierstad has also written books based on her experiences living in Kosovo and Chechnya.