The Australian government has dropped charges against an Indian doctor arrested over foiled bomb plots in the UK over a lack of evidence.

Mohammed Haneef, 27, had been in jail since his arrest at Brisbane airport on July 2 as he was about to leave for India. He was charged with recklessly supporting terrorism by providing a relative in Britain with his mobile phone SIM card.

His arrest followed a thwarted attempt to bomb Glasgow Airport, when two men attempted to drive a blazing Cherokee Jeep into the arrivals hall on June 30. It followed the discovery of two cars packed with fuel, gas canisters and nails near a London club.

Three people have been charged in the UK over the failed attacks, including Haneef's second cousin Sabeel Ahmed, who is accused of failing to disclose information that could have prevented an attack.

Another of Haneef's second cousins, Kafeel Ahmed, remains critically ill in hospital after being badly burned in the Glasgow incident.

The Australian government said it will seek further legal advice on whether Dr Mohamed Haneef should now be deported, but released him from jail while his immigration status is clarified.

Australia's chief prosecutor, Damian Bugg, dropped the charges after weeks of damaging media leaks and growing public criticism about the lack of strong evidence against the doctor.

He said: "On my view of this matter, a mistake has been made".

Dr Haneef's lawyer, Peter Russo, said his client is "quite upbeat and relaxed" and will remain patient while he fights to recover his visa. His wife, Firdaus Arshiya, speaking from India, welcomed the change of heart by Australian authorities.

From her home in Bangalore, she said: "I am extremely happy that he has finally been proven innocent."