But she added: "If he were to return to Sweden before the statute of limitation on this case expires in August 2020, the preliminary investigation could be resumed".
While Friday's announcement means Assange is no longer under any investigation in Sweden, there is no guarantee he will be able to walk free.
Assange's lawyer Per Samuelson said the drop of the investigation is a "total victory" for them.
The lawyer for Assange's accuser said it was a "scandal" that the case was not tried in court. "The Metropolitan Police Service is obliged to execute that warrant should he leave the embassy". There is a warrant for his arrest following his failing to appear before the court on the 29 June 2012, according to the police.
Manning, a transgender woman and USA soldier, was convicted of espionage in 2013 and sentenced to 35 years in an all-male prison.
However, the BBC reports Assange could still be detained by United Kingdom police and face extradition to the USA if he were to do so. If he were to be extradited to the USA, he could face charges related to WikiLeaks, which posted thousands of classified military documents leaked by Chelsea Manning in 2010.
Last month, CNN reported USA authorities had prepared charges to seek Assange's arrest while The Washington Post reported us federal prosecutors were weighing charges against WikiLeaks members after the Justice Department declined to do so during President Obama's time in office.
Friday was the deadline for prosecutors to renew or lift the warrant for Assange's arrest.
In a speech from the balcony of the Ecuadorian Embassy in Knightsbridge, he slammed the circumstances that led him to take refuge there and termed it "detention".
"The investigation is discontinued", Marianne Ny, the director of public prosecution, told reporters in Sweden's capital, Stockholm.
Some legal experts say it makes his position less secure. "We have professionals that have been in the security business of the United States for many years that are shocked by the number of leaks and some of them are quite serious".
"Julian Assange has been a victim of a huge abuse of procedure". An offense punishable by up to a year in prison or a fine. It may be recalled that Assange has been living in the Ecuadorean Embassy in London for the past five years.