Guardian reporter Amelia Hill has accused police and prosecutors of pursuing a 'sinister attempt to chill public interest journalism".
Hill was first questioned by police in September after a 51-year officer was arrested for allegedly supplying information to the paper.
Yesterday she was told that no charges would be brought against her for aiding and abetting misconduct in public office or for breach of the Data Protection Act.
In a statement released yesterday Hill 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 £3 million 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."
Alison Levitt QC, the principal legal advisor to the Director of Public Prosecutions, said there was "sufficient evidence" to show that 10 articles written by Hill between 4 April 2011 and 18 August 2011 contained confidential information from Operation Weeting, including the names of those who had been arrested.
There was also sufficient evidence to establish the police officer in question had disclosed the information to Hill.
But Levitt concluded there was insufficient evidence against either suspect to provide a 'realistic prospect of conviction'for the offices of misconduct in a public office or conspiracy to commit misconduct in a public office.
There was also no evidence the police officer was paid for the information, and the information he disclosed was said to 'confidential'but not 'highly sensitive".