Computer hacker Gary McKinnon will face no further criminal action, the Director of Public Prosecutions has announced.
The decision follows a review of the case after the Government's decision to block his extradition to the US in October on health grounds.
Mr McKinnon, 46, from Wood Green, north London, would have faced up to 60 years in prison if convicted in the US of alleged breaches of US military and Nasa networks.
Prosecutors had to decide whether Mr McKinnon should be tried in Britain over the allegations but said the appropriate place for trial would have been the US. That means no further charges will be levelled.
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.
The Director of Public Prosecutions, Keir Starmer QC, said: "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 any trial should be held in the US was affirmed in 2009 and subsequently challenged in the High Court, and that challenge failed, Mr Starmer said.
"So far as the evidence is concerned, the position in 2012 is the same as it was in 2002."
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."
Mr McKinnon's mother, Janis Sharp, said the announcement was "just wonderful".
She added that a pardon from the US was possible because Mr Obama "seems like a good person and so does his wife".