VANCOUVER, NEW YORK (REUTERS, AFP) - A Canadian judge on Friday (Sept 24) signed Huawei chief financial officer Meng Wanzhou's order of discharge, vacating her bail conditions and allowing her to go free after nearly three years of house arrest as her US extradition case ends.

Canadian government lawyers asked the court to withdraw the authority to proceed in her case and discharge her, after Meng reached a deal with United States prosecutors earlier on Friday that ended their bank fraud case against her.

The US Justice Department said Friday it has reached a deferred prosecution agreement with Meng that would avoid a trial and move towards defusing a case that has strained relations with China.

Meng, who agreed to a statement of facts in the case but did not plead guilty, will see the felony fraud charges against her dropped on Dec 1 next year if she abides by the agreement, a Justice Department attorney told the federal court in Brooklyn, New York.

The executive was arrested at Vancouver International Airport in December 2018 on a US warrant and was indicted on bank and wire fraud charges for allegedly misleading HSBC about Huawei's business dealings in Iran.

The deferred prosecution agreement, reported first by Reuters, pertains only to Meng and US charges against the company remain, according to another source familiar with the matter.

Such a resolution would remove one of several major disputes between the world's two biggest economies.

The agreement could also potentially pave the way for the release of the two Canadians - businessman Michael Spavor and former diplomat Michael Kovrig - held in China, who were arrested shortly after Meng was taken in custody in 2018.

Last month, a Chinese court sentenced Spavor to 11 years in prison for espionage.

A spokesman for Huawei declined to comment. A spokesman for the US Attorney's office in Brooklyn declined to comment.

An attorney for Meng could not be immediately reached for comment.

Meng has maintained she is innocent and has been fighting extradition to the US from Canada.

She is confined to Vancouver and monitored 24/7 by private security that she pays for as part of her bail agreement.

Under a deferred prosecution agreement, the government agrees to refrain from prosecuting a defendant for a period of time, and drops the case altogether if the defendant complies with specified conditions.

Huawei, a telecommunications equipment giant, was placed on a US trade blacklist in 2019 that restricts sales to the company for activities contrary to US national security and foreign policy interests.

The restrictions have hobbled the company, which suffered its biggest ever revenue drop in the first half of this year, after the US supply restrictions drove it to sell a chunk of its once-dominant handset business and before new growth areas have matured.

The criminal case against Meng - the daughter of Huawei founder Ren Zhengfei - and Huawei is cited in the blacklisting.

Huawei is charged with operating as a criminal enterprise, stealing trade secrets and defrauding financial institutions. It has pleaded not guilty.

Articles published by Reuters in 2012 and 2013 about Huawei, its former subsidiary Skycom and Meng figured prominently in the US criminal case against her.

Reuters reported that Skycom had offered to sell at least €1.3 million (S$2 million) worth of embargoed Hewlett-Packard computer equipment to Iran's largest mobile-phone operator in 2010. At least 13 pages of the proposal were marked "Huawei confidential" and carried Huawei's logo.

Reuters also reported numerous financial and personnel links between Huawei and Skycom, including that Meng had served on Skycom's board of directors between February 2008 and April 2009.

Judicial hearings in her extradition case in Vancouver wrapped up last month, with the date for a ruling to be set on Oct 21.

China v US

Huawei has become a dirty word in Washington, with a knee-jerk reaction by China hawks in Congress to any news that could be construed as the US going soft, despite Huawei being hobbled by US trade restrictions.

Then President Donald Trump politicised the case when he told Reuters soon after her 2018 arrest that he would intervene if it would serve national security or help secure a trade deal. Meng's lawyers have said she was a pawn in the political battle between the two superpowers.

Senior US officials have said that Meng's case was being handled solely by the Justice Department and the case had no bearing on the US approach to ties with China.

During US Deputy Secretary of State Wendy Sherman's July trip to China, Chinese Vice-Foreign Minister Xie Feng insisted that the US drop its extradition case against Meng.

US officials have acknowledged that Beijing had linked Meng's case to the case of the two detained Canadians, but insisted that Washington would not be draw into viewing them as bargaining chips.