In fact after much intrigue and caluminy the Jesuits fessed up that he had never been laicized as many contended. Paul VI released him from the vows but he remained a priest as Walty said.
I don't think that's the case. Here's the statement to which you refer:
I spoke with Fr. Vincent O'Keefe, former vicar general of the Society of Jesus who is now retired. According to Fr. O'Keefe, Malachi Martin was indeed dispensed from his vows of poverty and obedience but not the vow of chastity. At the time Martin requested such dispensation, the Vatican was not dispensing priests who so requested such dispensation from the vow of chastity or celibacy. Fr. O'Keefe pointed out that Martin never married. His obituary in the New York Times, however, points out that Martin lived with a female companion. http://www.williamhkennedy.com/articles/highrankMM.html
Tom Widner SJ
Secretary for Communications
U.S. Jesuit Conference
1616 P St. N.W., Suite 300
Washington, D.C. 20036-1420
It appears that he was laicised but not given a dispensation from celibacy or the vow of chastity.
There seems to be a Vatican statement on the matter also, which is somewhat different:
Malachi Martin states, and the Holy See will confirm if asked, that "In 1965, Mr. Martin received a dispensation from all privileges and obligations deriving from his vows as a Jesuit and from priestly ordination." [Congregation for Institutes of Consecrated Life and Societies of Apostolic Life, 25 June 1997, Prot. N. 04300/65].http://www.ewtn.com/expert/answers/malachi_martin.htm
Although the statements differ in some respects, they both state that Fr. Martin was laicised.