Computer hacker Gary McKinnon will face no further criminal action, the Director of Public Prosecutions (DPP) Keir Starmer QC said.
The decision follows a review of the case after the Government's decision to block his extradition to the United States in October on health grounds.
Mr McKinnon, 46, of Wood Green, north London, would have faced up to 60 years in prison if convicted in the US. Mr McKinnon, who suffers from Asperger's syndrome, was permitted to stay in the UK after medical reports showed he was very likely to try to kill himself if extradited.
Both Prime Minister David Cameron, who held talks on the case with US president Barack Obama, and his deputy, Nick Clegg, had condemned plans to send him to the US. However, the decision not to extradite "disappointed" the US authorities.
Mr Starmer said that between February 1 2001 and March 19 2002, Mr McKinnon allegedly gained unauthorised access to 97 US government computers. "An investigation was launched in the US and a request for assistance was made to the National Hi-Tech Crime Unit in England and Wales. Following discussions between the US Department of Justice, the police and the Crown Prosecution Service in the autumn of 2002, a decision was taken that the appropriate place for Mr McKinnon to be tried was the United States." As a result, the US sought Mr McKinnon's extradition for trial in the US.
The decision that the appropriate place for Mr McKinnon to be tried was the US was affirmed in 2009 and subsequently challenged in the High Court, and that challenge failed, Mr Starmer said. On October 16, Home Secretary Theresa May decided not to extradite Mr McKinnon to the US. She also announced it was now for the DPP to decide whether Mr McKinnon had a case to answer in a UK court.
Mr Starmer said: "None of the reasons for the original decision in 2002 that the appropriate place for Mr McKinnon to be tried was the United States have altered. So far as the evidence is concerned, the position in 2012 is the same as it was in 2002. Most of the witnesses are in the US, as is nearly all the physical evidence and the bulk of the unused material, some of which is sensitive. Accordingly, in November this year, the CPS and the police met senior officials from the US Department of Justice to discuss the possibility of bringing the US witnesses to England and Wales for trial and of transferring all the US material to this jurisdiction to be considered.
"The potential difficulties in bringing a case in England and Wales now should not be underestimated, not least the passage of time, the logistics of transferring sensitive evidence prepared for a court in the US to London for trial, the participation of US government witnesses in the trial and the need fully to comply with the duties of disclosure imposed on the CPS. The prospects of a conviction against Mr McKinnon which reflects the full extent of his alleged criminality are not high.
"After consulting with the Metropolitan Police Service and the CPS and having carefully considered matters, on 4 December this year, US authorities indicated to us that they would be willing to co-operate with a prosecution in England and Wales if that would serve the interest of justice. However, they do not consider that making all the US witnesses available for trial in London and transferring all of the US material to this jurisdiction would be in the interests of justice given our representations and the reasons for the decision that the US was the appropriate forum." He added: "Against this background, the joint CPS/police panel recommended to the assistant commissioner of the Metropolitan Police that he should not commence a new criminal investigation into Mr McKinnon. The assistant commissioner of the Metropolitan Police has accepted that advice."
Mr McKinnon's lawyer Karen Todner said: "I have mixed feelings about this - I am pleased he is not going to be prosecuted because I wouldn't want to think he would ever spend any time in prison given his mental situation. But I am disappointed because the extradition warrant is still outstanding because he can't travel anywhere outside of the UK and will have this hanging over him until it's resolved. We have discussed approaching president Obama and asking for a pardon."