The inquiry was launched four years ago after former US National Security Agency contractor Edward Snowden revealed the scale of the US National Security Agency's eavesdropping program.
Reports in 2013 that the agency had been monitoring German Chancellor Angela Merkel's mobile phone prompted Merkel to call then US President Barack Obama to demand explanations.
"Spying among friends — that is simply not done," the chancellor said at the time. "The Cold War is over."
The White House gave no outright denial, but claimed that Merkel's phone was not being bugged at the moment and would not be in future.
To Germany's embarrassment, further allegations suggested that Germany's own Bundesnachrichtendienst (BND) intelligence service had helped the NSA spy on European targets for years.
Prosecutors in Karlsruhe said Thursday that although the techniques used in US surveillance and described in the "so-called Snowden documents" were known to German intelligence agencies, there was no proof of them being used against Germany. Thus, it was decided to no longer pursue the case.
"The prosecutor's' investigations and the investigation by the NSA parliamentary committee have found no tangible evidence that US or British intelligence agencies undertook systematic and mass surveillance of German telecommunications and internet that is against the law," the prosecutors said in a statement.
They added that all major global intelligence agencies strategically intercept telecommunications data and internet traffic but that nothing indicated that the UK or US had specifically targeted Germany.
