"Today is a happy day for me but one of mixed emotions too," he said in a statement read by the Bishop of Liverpool, the Right Reverend James Jones.
"I am a free man, yes, but it should not have come to this."
Mr Shields appeared at a news conference after being reunited with his family, who have campaigned for his release since he was convicted of the attack against Martin Georgiev in Varna.
He spoke of his gratitude for the "tireless campaigning" to secure his release.
"Most of all I want to thank my mum and dad, my sisters, my family and my friends, who never for one minute doubted my innocence and who stood by me every step of the way," he said.
"I couldn't have made it without their love."
Mr Shields was convicted of the attack in July 2005 and was jailed for 15 years, despite protesting his innocence.
Another man later confessed to the attack but the evidence was ruled inadmissible at his trial and he later retracted his statement.
In April 2006 Mr Shields' sentence was reduced to 10 years and seven months later he was transferred to the UK to serve the rest of his jail term.
A year later Mr Shields passed a lie detector test and in 2008 two senior High Court judges ruled that Mr Straw did have the "power and jurisdiction" to exercise the ancient royal prerogative of mercy in his case.
The justice secretary had always maintained he did not have this power.
Michael Shields: Today is the first day of the rest of my life
The decision to release Mr Shields was announced on Wednesday morning by Mr Straw. He said that fresh evidence had come to light during a meeting with the Shields family on 28 August.
It is the first Royal Pardon issued to a British person convicted of a crime overseas, the Ministry of Justice confirmed.
Mr Shields' mother Marie and his father, Michael Snr, were told of his release in a phone call by Mr Straw.
Mr Shields, a window cleaner, said: "We are feeling elated, it has taken such a long time.
"It is a big weight off our shoulders and we've been knocking on the door for four and a half years."
We would hope the Bulgarian authorities would have regard to what Jack Straw has said and re-open the investigation
Peter Weatherby, barrister
Their son said he extended his sympathies to Mr Georgiev, the attack victim.
"He and his family, like me and mine, have been denied justice for four long years," he said.
"My priority now is to spend time with my loved ones, to slowly begin to plan for a future as an innocent man."
Mr Shields also thanked his supporters, including both Liverpool and Everton fans.
"Your voices were heard. Thanks to you, I knew I would never walk alone."
Mr Shields' legal team said it remained their intention to completely clear his name in a Bulgarian court.
Barrister Peter Weatherby said: "We would hope the Bulgarian authorities would have regard to what Jack Straw has said and reopen the investigation."
The new evidence which has emerged from the meeting with Mr Shields' parents and from Merseyside Police's subsequent inquiries has been passed to the Bulgarian authorities by the British ambassador in Sofia.
They have yet to issue a response to Mr Shields' release.
This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.