Sweden's chief prosecutor Marianne Ny said the move was not a statement on Assange's possible guilt, but instead had been forced by legal obstacles. Despite that, the 45-year-old has signaled that he will remain inside Ecuador's London embassy where he has been hold up since 2012.
Sky News quoted him as saying that 'I can not forgive awful injustice'.
Assange's lawyer, Per E Samuelsson, told Swedish Radio the decision was "a total victory" for his client.
Scotland Yard said it was obliged to execute a warrant issued by Westminster Magistrates' Court for the arrest of Mr Assange following his failure to surrender to the court in June 2012, should he leave the embassy.
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Apparently, all you have to do to avoid years of prison for allegedly raping a girl and leaking classified information is to plant yourself in an Ecuadorean embassy for five years.
The original allegations of rape stem from 2010, though Assange continues to insist that the sexual encounter was consensual and that the investigation was politically motivated.
United Kingdom officials have not confirmed that they would or would not extradite Assange to the US.
Still, they acknowledged that the prosecutor's decision left Assange wanted for a "much less serious offence", and the police "will provide a level of resourcing which is proportionate to that offence".
The London Metropolitan Police, however, made it clear in a statement that there was an outstanding arrest warrant for Assange.
Nye, meanwhile, said the statute of limitations expires in 2020 over the rape allegations. He claimed they were made up as part of a plot to see him extradited to the USA over his involvement with WikiLeaks.
"This implies that we can now demonstrate that the U.S. has a will to take action... this is why we ask for the arrest warrant to be cancelled so that Julian Assange can fly to Ecuador and enjoy his political asylum", lawyer Per Samuelsson told AFP at the time.
Lawyer David Allen Green, who has followed the case, tweeted: "Once outside embassy, Assange more at risk from any USA extradition attempt than if he had gone to Sweden". "Samuelson cited a comment by U.S. Attorney General Jeff Sessions that the arrest would be a priority".
"While today was an important victory, the road is far from over", Assange said.