The diplomatic row is likely to set back efforts to adopt a joint approach among the region's states against Al-Qaeda, which the United States and Europe believe could carve out a safe haven in the Sahara desert like those in Yemen and Somalia.
Al-Qaeda's North African wing, Al-Qaeda in the Islamic Maghreb (AQIM), had said it would execute hostage Pierre Camatte, kidnapped in Mali in November last year, unless the Malian authorities released the four.
Algeria "strongly condemns and denounces this unfriendly attitude from the Malian government," said a Foreign Ministry statement quoted by Algeria's official APS news agency.
"Following the decision of the Malian government to carry out the release of the four terrorists ... the Algerian government has decided to recall, for consultations, its ambassador in Bamako," the statement said.
A Malian newspaper reported on Sunday that a court in the capital had sentenced the four to the time they had already served - effectively meaning they were free. Algerian media said two of the men were Algerians.
Since then there has been no news on whether the French hostage has been allowed to go free.
Algeria, which has been fighting insurgents for years, is fiercely opposed to any deals being struck with AQIM to secure the release of foreign hostages, saying they strengthen the rebels.
On Monday, Mauritania said it was withdrawing its ambassador in protest at the release of one of the four, who it said was a Mauritanian Al-Qaeda member. Coordination between the Sahara region states of Algeria, Libya, Mali, Mauritania and Niger in fighting AQIM was already ineffective, and security experts said the diplomatic row would make it even worse.
"Now we can forget about any policy of cooperation between the states of the Sahel," said an African security official, who did not want to be identified.
The Algerian Foreign Ministry statement said the release of the four is "a dangerous development for the security and stability of the Sahel-Sahara region and, objectively speaking, serves the interests of the terrorist group active in the region under the Al-Qaeda banner.”
AQIM has for years been trying to overthrow Algeria's government with suicide bombings and ambushes but in the past few years it has switched its focus south to the vast expanses and porous borders of the Sahara desert.
Western security officials are worried the group could exploit the lack of coordination among the region's states to entrench their position in the Sahara.
Salima Tlemcani, a security expert with Algeria's El Watan newspaper, said Mali's release of the four Al-Qaeda suspects was "a knife in the back of neighboring countries."
