The IED was recovered during a house search in the Keady area on Monday.
Police attended the property after a man was arrested in Co Monaghan on Sunday in connection with the discovery of bombs in the Republic of Ireland.
He has now been released without charge.
“A man in his 40s arrested as part of this investigation has been released from the provisions of Section 30 of the Offences against the State Act, 1939 without charge,” said an AGS spokesperson.
“A file will be prepared for the Director of Public Prosecutions. The investigation remains ongoing.”
The Army had supported the PSNI raid which took place in the Tassagh Road area of Co Armagh, during which the IED was dealt with.
“Police have recovered and made safe an improvised explosion device and removed a number of items from a house search in Keady,” a PSNI spokesperson said.
“The items and the device were seized and taken away for further forensic examinations.”
The operation is focused on a potential link to a hoax device discovered in Co Armagh earlier this month.
“Officers carried out a search at the location in support of an investigation by An Garda Síochána in Monaghan,” the police spokesperson added.
“Enquiries are continuing and at this stage, police are investigating a potential link between this search and a security alert which occurred at the Ballyards Road area of Milford in Armagh on Tuesday July 1.”
Gardai previously said the arrest in the Republic came as part of the investigation into the discovery of a number of attempted IEDs in the north-east and south-west of Ireland including at premises near Foynes in Co Limerick.
The suspect was also being investigated for possible links to dissident republicans.
The probe also follows the discovery of devices in Castleblayney Co Monaghan last week.
Police, forensics, army bomb disposal teams and firefighters attended the scene on a remote private laneway near Keady on Monday. Credit: Alan Lewis
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PSNI Detective Inspector Winters said: “Our enquiries are continuing in relation to this investigation, as we work closely with our colleagues from An Garda Síochána.
“We would appeal to anyone who may be able to assist to contact police on 101 quoting reference number 361 07/07/25.
“Alternatively, you can submit a report online using the non-emergency reporting form via http://www.psni.police.uk/makeareport/ or contact Crimestoppers anonymously on 0800 555 111 or online at http://crimestoppers-uk.org/.”