SYDNEY, Australia (AP) _ A woman who said a wild dog snatched and ate her newborn child was found innocent of murder Thursday, closing the book on an 8-year-old case that divided Australia and captured headlines worldwide.

The Northern Territory Court of Criminal Appeal in Darwin overturned Lindy Chamberlain's sentence of life imprisonment with hard labor. She spent about four years in jail.

It also quashed the conviction of her husband, Michael, a pastor for the Seventh Day Adventist Church, on charges of being an accessory to murder.

Mrs. Chamberlain, who was born in New Zealand, became a household name in 1980 when she said a dingo, or native Australian dog, carried off her 6-week- old daughter Azaria while the family camped in the Outback near Ayers Rock, a sacred aboriginal site.

Replete with rumors of black magic and a suicide that led to a break in the case, the Chamberlain story made Page 1 in newspapers across Australia and elsewhere. All Australians seem to have an opinion on the woman's story.

In 1987, she was pardoned but her conviction was not overturned. Thursday's innocent verdict finally sealed the case shut.

Gasps filled the courtroom when the decision was announced. Michael Chamberlain clasped his hands to his head and wept. His wife, who had been staring at the judges, slumped in her seat.

''The law of the land holds the Chamberlains to be innocent,'' said the ruling.

The Chamberlains' defense attorney had accused the Northern Territory government, which originally prosecuted the pair, of waging a ''modern-day witchunt.''

The lawyer, Stuart Tipple, said the Chamberlains were waiting to see whether the government would pay the couple compensation before deciding on any civil action. Earlier, he said the couple was seeking about $750,000.

After the verdict, Mrs. Chamberlain, a tiny woman in high-heeled red shoes, was thronged by curious onlookers as she strode with straightened shoulders from the courthouse.

The crowd clamored for a closer look as the couple made their way through the large crowd to their car. Construction workers nearby downed tools and whistled while others jeered.

The Chamberlain drama began on a cold night in August 1980 when Mrs. Chamberlain cried out at the family camp side at Ayers Rock, central Australia, ''A dingo's got my baby 3/8''

At first, the Chamberlains' story was believed. But when the couple went to court, Mrs. Chamberlain was accused of slitting her baby's throat.

The baby's body was never found, but bloodstains were found in the couple's tent.

On Oct. 29, 1982, the Chamberlains were found guilty and Mrs. Chamberlain was sentenced to life in prison, where she to gave birth to a second daughter, Kahlia. Her husband was sentenced to a suspended 18-month sentence.

The couple has two other sons, Aiden and Reagan. Although the prosecution never alleged black magic as a motive, many Australians have linked the death of baby Azaria to witchcraft and satanic rites, believing the children have mystical names.

The family denied rumors that the name Azaria meant ''sacrifice in the wilderness.'' Many Australians also thought it significant that the death occurred at Ayers Rock, sacred to aborigines in one of the most remote parts of Australia.

In February 1986, a remarkable breakthrough in the case came when a British tourist jumped off the huge monolith to his death.

Aboriginal trackers investigating the suicide found the tattered remains of Azaria's jacket, which Mrs. Chamberlain swore the baby was wearing the night she vanished.

The discovery of the jacket proved that Mrs. Chamberlain had not been lying about at least one aspect of her baby's death and prompted officials to reopen the case.

Five days after the jacket was found, Mrs. Chamberlain was released from prison. On June 2, 1987, a federal judge pardoned her and said Mrs. Chamberlain may have told the truth when she said the dingo snatched and ate the baby.

''Indeed, the evidence affords the view that a dingo may have taken her,'' federal Judge Trevor Morling wrote in his opinion.

But under Australian law, the pardon was as far as Trevor could go and the Chamberlains returned to court to overturn the conviction.

''There is no satisfaction, no joy, knowing they still believe you are guilty,'' Mrs. Chamberlain said at the time.

Although the court case is over, the Chamberlain story will continue.

American movie star Meryl Streep recently finished filming a movie on the case based on a book titled ''Evil Angels.'' The American release is provisionally called ''A Cry In The Darkness.''