In a 105-page ruling, the appeals court agreed with a lower court that Syed's right to effective legal representation "was violated by trial counsel's failure to investigate a potential alibi witness".
Syed was convicted in 2000 of killing Hae Min Lee, his high school sweetheart.
It was not immediately clear if prosecutors plan to appeal the latest ruling to the state's highest court.
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Baltimore Circuit Judge Martin Welch had ruled that Syed's original lawyer, Cristina Gutierrez, should have cross-examined a witness about the reliability of cellphone tower evidence. But it remains a possibility that prosecutors will appeal Thursday's decision to Maryland's highest court, the Court of Appeals.
Syed maintained his innocence, and in 2014 his case attracted global attention when it was featured on the "Serial" podcast, which was downloaded millions of times and prompted legions of listeners to scrutinize the case online.
The show attracted millions of listeners and shattered records for the number of times a podcast has been streamed or downloaded.
Syed's trial lawyer tweeted the news about the new trial on Thursday afternoon.
Tuesday forecast: cloudy, high 60
Thunderstorms could develop Thursday , with a 90-percent chance for rain, high near 67 degrees and a low around 50 degrees. Through the night we'll see more clouds develop across the state with mostly clear to partly cloudy skies expected.
According to the Baltimore Sun, the office of the Maryland Attorney General is "currently reviewing today's decision to determine next steps".
In a dissenting opinion, Judge Kathryn Grill Graeff disagreed with the majority, saying Syed had failed to overcome the presumption that his trial lawyer's failure to contact McClain was based on reasonable trial strategy. If the new trial does happen, new evidence will likely be presented including testimony from witness Asia McClain Chapman, who claims she saw Syed in the library at the same time that he supposedly killed Lee.
"We hope that they (the state) will come to the conclusion that this has gone on long enough" and not appeal the ruling, Brown told a press conference.
This story is developing.
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