The Guardian’s Amelia Hill said there was a “completely disproportionate response” from authorities in considering whether she and an Operation Weeting detective should face court.
The Crown Prosecution Service ruled charges were not needed after considering new legal guidelines for criminality in journalism.
But, in a statement, Ms Hill expressed anger that an investigation had taken place.
She said: “I have spent the last nine months as the focus of a criminal investigation, under the threat of prosecution.
“This was not only incredibly difficult for me personally but was a completely disproportionate response by the police and the CPS, and a sinister attempt to chill public interest journalism.
“The Milly Dowler investigation that I wrote with Nick Davies was the tipping point that forced News International to finally admit it was complicit in widespread illegal conduct.
“It led to a near £3m apology to Mr and Mrs Dowler. It also showed how the police had avoided investigating phone hacking for many years, directly leading to the resignation of three senior Met officers, including the former Metropolitan Police Commissioner, Paul Stephenson.
“The danger of these protracted police investigations is that, as in this case, the police use their criminal powers as a threat and an assault on investigative journalism. I hope the CPS’s retreat today will mean that does not occur in this case.”
Ten articles written by Ms Hill appeared to contain confidential details about the long-running investigation passed on from the detective, prosecutors said.
But Alison Levitt QC, the principal legal advisor to the Director of Public Prosecutions, said the information disclosed “was not highly sensitive”.
“It did not expose anyone to a risk of injury or death,” she said. “It did not compromise the investigation. And the information in question would probably have made it into the public domain by some other means, albeit at some later stage.”
Ms Levitt said she had reached her decision after referring to the guidance issued last month to help lawyers with the “very difficult decisions” surrounding the phone-hacking inquiry.
Lawyers must decide if newsgatherers are striking the right balance between public interest and criminality under the new rules.
The Guardian newspaper said the announcement was a “sensible decision to abandon this worrying attempt to criminalise legitimate contact between journalists and confidential sources”.
Ms Levitt added: “Journalists and those who interact with them have no special status under the law and thus the public interest factors have to be considered on a case-by-case basis in the same way as any other.
“However, in cases affecting the media, the DPP’s interim guidelines require prosecutors to consider whether the public interest served by the conduct in question outweighs the overall criminality alleged.
“So far as Ms Hill is concerned, the public interest served by her alleged conduct was that she was working with other journalists on a series of articles which, taken together, were capable of disclosing the commission of criminal offences, were intended to hold others to account, including the Metropolitan Police Service and the Crown Prosecution Service, and were capable of raising and contributing to an important matter of public debate, namely the nature and extent of the influence of the media.”