The SC ruled that a lower court had abused its powers when it ordered the arrests in 2003 of Imelda Rodriguez and her husband Eduardo Rodriguez, a former governor of Quezon.
The husband is serving a three-year prison term imposed by a court in Los Angeles, California, after earlier agreeing not to contest his extradition.
Washington had asked Manila to extradite the couple for grand theft and insurance fraud.
The case stemmed from a claim by the former governor that his wife had died in a traffic accident in their native Philippines in 1985. He managed to collect $100,000 from one of four insurance companies.
Imelda Rodriguez meanwhile is also alleged to have separately received some $50,000 in claims after she said her mother died.
A lower court in Manila initially allowed the couple to post cash bail of P1 million each, but later canceled the bond and ordered their arrest when the US embassy appealed.
Imelda remained in the Philippines and asked the SC to allow her to avoid extradition.
The SC ruling said the wife was "not a flight risk" and the cancellation of her bond and the issuance of an arrest warrant without prior notice or hearing was a "violation of her right to due process."
It said she was in her sixties, was sickly and receiving medical treatment.
"We believe that the benefits of continued temporary liberty on bail should not be revoked and their grant of bail should not be canceled without her being given notice and without her being heard why her temporary liberty should not be discontinued," the SC said. — AFP