Mr Green, who was arrested in November, said he was "very pleased" with the decision of the Crown Prosecution Service.
He said the failed investigation reflected an "out of touch, authoritarian, failing government".
The decision raises serious questions about the decision to call in police, which was made at the highest levels of the civil service.
Director of Public Prosecutions Keir Starmer said neither Mr Green nor Christopher Galley, the civil servant who passed him a string of confidential documents, would face charges.
Mr Starmer said the material did not relate to "military, policing or intelligence matters" and was not in many ways "highly confidential".
His statements appear to contradict claims by senior civil servants relating to the decision to call in Scotland Yard.
In the letter to police which prompted the investigation, Cabinet Office director of security and intelligence Chris Wright said the leaks had caused "considerable damage to national security".
Sir David Normington, the most senior civil servant in the Home Office, told a committee of MPs "at least one" of the leaks related to national security.
Home Secretary Jacqui Smith defended the role of the Home Office in the leaks inquiry, saying it would have been "irresponsible" not to have taken action.
Ms Smith told Sky News: "I think it is right that we take our responsibilities to protect that information seriously and that is what we have done throughout this process.
"I think senior civil servants and myself in fact have a responsibility to keep information safe.
"The Director of Public Prosecutions has been clear that even in this case there has been potential for damage to the Home Office, to our business.
"My job is to protect the British people. It is also to protect the sensitive information about how we protect them as well and that is what we have done."
In a report released today, the Commons home affairs committee said frustration at the string of leaks may have led officials to give Scotland Yard an "exaggerated impression" of their seriousness.
The committee said the description of the damage done by the leaks was "unhelpful" and "hyperbolic" and questioned whether without it, the police would still have investigated.
Mr Galley was "extremely relieved" by the decision, his solicitor said.
Neil O'May from Bindmans said the information his client passed to Mr Green "did not involve any question of national security" and questioned whether the "lengthy and expensive investigation" could be justified.
Mr Galley, who was suspended on full pay during the police investigation, will now face disciplinary action by the Home Office, a spokesman said.
Former Tory frontbencher David Davis said the case had been brought in an attempt to protect ministers from political embarrassment.
The political culture in both the Cabinet Office and the Home Office had resulted in a "misuse of the law", he said.
Mr Starmer's statement made clear the case "should never have been brought", he said.
And he questioned how much ministers knew of the decision to call in the police.
He said: "The fact that this case was brought amounts to a massive misjudgment by the Cabinet Office and the Home Office and demonstrates only too clearly the political culture within these departments which encourages such misuse of the law to protect ministers from political embarrassment, since there was never any significant threat to national security.
"It is clear from the Home Affairs Select Committee Report and the Director of Public Prosecutions statement that there was absolutely no threat to national security, and that the claims made to this effect were exaggerated.
"This was true both in making the decision and in attempting to justify it afterwards."
He also backed the call by the Home Affairs Committee for whistleblowers to face criminal prosecution only if they release highly secret national security information.
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