Police had a suspect in custody but admitted they had the wrong man and released him early on Tuesday evening.
Die Welt reports that no blood was found on the man's clothing which would be a logical consequence of having shot the man who was found dead in the passenger seat.
There driver is believed to be still at large.
The incident took place at Breitscheidplatz under the capital's iconic Kaiser Wilhelm Memorial Church shortly after 8pm on Monday evening, killing at least 12 people.
The suspect was taken to Karlsruhe in southern Germany, the seat of the country's federal prosecutors. He denied any link to the attack.
The suspect was a 23-year-old, reportedly from Pakistan. Police admit however that they have limited evidence at this stage.
He arrived in Germany in February of this year after travelling along the so-called Balkan route through southern Europe, security officials told DPA.
Since then he lived in a refugee centre in Berlin, possibly the one at Tempelhof Airport, which was reportedly stormed by police special forces on Tuesday morning.
He was also known to police after being suspected of committing petty crimes. He was not however already under surveillance on suspicion of having terror links, according to Tagesspiegel.
Angela Merkel said on Tuesday morning that “we should assume it was a terror attack”. As yet though, there is no indication that a terror organization such as Isis directed the attack.
If the driver was radicalized and did indeed come to Germany as a refugee, it is not clear whether he came to Germany with the intention of carrying out an attack or whether he was radicalized in Germany.
This year Germany has been shaken by several violent attacks, most of which took place over a seven day period in July.
Two – an axe attack on a train near Würzburg and a suicide bombing in Ansbach – were linked to terror group Isis. Both attackers are believed to have been in contact with Isis members in the run up to their crimes.
But in Munich a gunman killed nine people before taking his own life. While there was speculation that this crime was also linked to terrorism , the German-Iranian gunman appears to have been inspired by school shootings.