The announcement means the outspoken WikiLeaks leader no longer faces sex crime allegations in Sweden, although the British police say he is still wanted for jumping bail in Britain in 2012.
Swedish prosecutors made clear that the charges were not dropped because of a lack of probably cause or evidence, but rather because extraditing Assange to Sweden was proving to be impossible, the New York Times reports.
The Australian has been holed up in the embassy since mid-2012 when he sought asylum there to avoid extradition to Sweden to face accusations he raped a woman in 2010 in Stockholm.
Assange's lawyer, Per Samuelson, called Sweden's decision a "total victory".
Swedish prosecutors interviewed Assange at the embassy last November and received a full translation of the interview in mid-March, which they have since been reviewing.More news: Trump welcomes Colombia's president to the White House
Appearing on a balcony of the Ecuadorean embassy in London on Friday, Assange told supporters and a large media throng he had been detained and slandered as his children grew up without him. But it by no means erases seven years of detention without charge, imprisoned under house arrest and nearly five years here in this embassy without sunlight. An offense punishable by up to a year in prison or a fine.
Assange also vowed to continue publishing secret United States documents on WikiLeaks.
According to the BBC News, if Assange would return to Sweden before the statute of limitation on this case expires in August 2020, the preliminary investigation could resume.
"The investigation against Julian Assange is discontinued", read a statement put out by Director of Public Prosecution Ms. Marianne Ny.
Nearly 5 years ago Julian Assange was permitted refuge at the Ecuadorian embassy in London, where he has resided ever since.
The Australian, who has lived inside the embassy for nearly five years, said the "road is far from over", adding it was "extremely regretful" he was still being threatened with arrest if he leaves the embassy.More news: Markelle Fultz: Thomas believes he and Fultz can coexist
"The UK said it would arrest me regardless", he stated.
U.S. prosecutors have been drafting a memo that looks at charges against Assange and WikiLeaks members that possibly include conspiracy, theft of government property and violations of the Espionage Act, according to The Washington Post.
WikiLeaks tweeted after the Swedish announcement: "UK refuses to confirm or deny whether it has already received a United States extradition warrant for Julian Assange".
Assange has said nothing about his closer relationship with Anderson, and she has been coy about characterizing it as dating or romantic. We have won the Assange case.
But the Metropolitan Police Service (MPS) in the United Kingdom said Assange will still be arrested on a minor offence if he leaves the embassy.
Elisabeth Massi Fritz says her client is shocked by the Swedish decision but added that "she can't change her view that Assange has exposed her to a rape".More news: Trump threatens to cancel briefings for 'sake of accuracy'