The former prime minister was briefly released earlier this month for his wife's funeral.
However, analysts saw the decision as a definite boost for Sharif's party and supporters.
The two-judge bench also ordered the release of the former premier, his daughter and son-in-law from Adiala Jail in Rawalpindi.
A division bench of the IHC comprising Justice Athar Minallah and Justice Miangul Hassan Aurangzeb heard the petitions filed by former PM Nawaz Sharif, Maryam Nawaz and Capt (retd) Safdar.
The two judges hearing the case have a reputation for being independent-minded, lawyers said.
"Justice has been served, and I congratulate Nawaz Sharif's supporters", former Foreign Minister Khawaja Asif, a staunch Sharif ally, said outside the courtroom, where supporters chanted pro-Sharif slogans.
Nawaz and Maryam were arrested on July 13 upon arrival in Lahore from London.
Reacting to Wednesday's decision, Senator Javed Faisal, a close aide of Prime Minister Khan, pointed out that the court only suspended Sharif's sentence and those of his family members, and did not acquit them.
When the court asked him if the forged documents had led to her conviction for owning assets beyond means, the prosecutor replied: "Maryam hatched the conspiracy". They both deny wrongdoing.
The duo were recently released on a bail to attend the final rites of his wife, Begum Kulsoom Nawaz, who passed away in London on September 12.
He repeatedly called the cases against him politically motivated, suggesting collusion between the powerful military and the courts to destabilise his Pakistan Muslim League-Nawaz (PML-N) party and throw him out of power.
"The Sharif family still has not proven where the billions of rupees came from for their property", said Fawad Chaudhry, the government's information minister, according to PTI's official Twitter account.
Nawaz Sharif has also been banned from public office for life.