The high-profile extradition case has been halted for now, but the Court said it was in the interests of justice that he should be extradited "as soon as he is fit" to be tried.
The ruling comes amidst doubts being raised about 32-year-old Shrien's involvement in the murder following the revelation of new CCTV footage by the BBC last night.
Bristol-based Shrien has always denied involvement for the killing of Anni Dewani, 28.
Judges in the High Court ruled that it would be "unjust and oppressive" to order the extradition of Dewani, which is said to be suffering from severe post-traumatic stress disorder and depression.
The extradition case has been remitted back to the Westminster Magistrates Court for a further hearing.
The judges said key factors taken into account included his unfitness to plead, increased prospects of a speedier recovery if he remains in the UK and "the lack of clear certainty" as to what would happen if he was returned to South Africa in his present condition.
In a statement, Dewani's family welcomed the ruling and said, "Shrien can only return to South Africa when he is well enough and when his personal safety can be guaranteed."
Anni Dewani was shot dead when the taxi she was travelling in with her husband was hijacked in the Gugulethu township in Cape Town.
The new footage obtained by the BBC video telecast last night shows Shrien and Anni Dewani kissing hours before the murder and raises questions about the credibility of a key witness who is also filmed.
Meanwhile, a South African legal expert said Shrien could serve his sentence in Bristol Prison if he is found guilty of plotting to murder Anni.
Paul Hoffman, a former acting High Court judge in South Africa, told the BBC that option was very unusual, but could be arranged through an inter-governmental deal.
A UK Ministry of Justice spokesman said the department had prisoner transfer agreements with various countries but not with South Africa.
However, that could change in the future.
South African taxi driver Zola Tongo, who has admitted his part in the murder, claimed that he was hired by Shrien to arrange his wife's execution during a fake car-jacking.