The Metropolitan Police said following a detailed "evidential review" and upon receipt of legal advice, it has made the decision to withdraw their application in a civil case under the Proceeds of Crime Act 2002 for the forfeiture of over 500,000 pounds (USD 611,160) in cash.
"The cash had been seized from a number of venues between 2012 and 2014. Having examined all of the evidence, the Met has accepted that there is insufficient evidence to prove that the money seized was the proceeds of crime or was intended for use in unlawful conduct," police said in a statement.
Since 2013, officers from the Met's National Terrorist Financial Investigation Unit had been investigating allegations of money laundering to which the civil proceedings were linked.
The Met said it had "worked diligently" on the investigation and "thoroughly investigated" all of the evidence to establish if any laws had been broken in the UK.
"All reasonable lines of enquiry have been exhausted, including international enquiries... The investigation is now complete and no further action will be taken," it concluded.
Six people, including MQM chief Altaf Hussain - based in London in exile - were arrested and 11 other people were interviewed under caution during the inquiry.
"The decision confirms that MQM has been innocent all along. The allegations levelled against my party and I have proved baseless. MQM is a legitimate political party whose members strive for a better Pakistan," Altaf Hussain said.
"Now that we no longer face the prospect of criminal investigations in the UK, we might focus our efforts on the plight of all the people of Pakistan, particularly Mohajirs who for nearly a year have seen their democratic elections ignored," he said.
Hussain has been living in self-imposed exile in the UK for more than 20 years. He was given a British passport in 2002.
The party has insisted that all its funds are legitimate and that most of them come from donors in the business community in Karachi.
The MQM remains the single largest party in Karachi for decades now and have dominated the political landscape for years sweeping provincial and national elections.