Amazon and its rival in India, the Walmart-owned Flipkart, did not break regulations through their selection of merchants and brands, the Competition Commission of India (CCI) said in a ruling late on Tuesday.
The decision is a defeat for a lobby group representing thousands of online sellers in India.
A case brought by the All India Online Vendors Association (AIOVA), which represents more than 3,500 online sellers, complained that Flipkart was using its dominant position to favour select sellers - an argument the CCI rejected.
"Looking at the present market construct and structure of online marketplace platforms market in India, it does not appear that any one player in the market is commanding any dominant position at this stage of evolution of market," the Commission said in its ruling.
The Commission added its "considered opinion" was that Amazon has also not broken the rules.
AIOVA has also brought a similar case against Amazon, alleging it favours merchants that it partly owns, such as Cloudtail and Appario.
Chanakya Basa, a lawyer for AIOVA, said his client planned to appeal the decision.
"By their own admission Flipkart claims they are the dominant player," he said.
Flipkart and Amazon could not be immediately reached for comment. Amazon has previously denied the allegations against it.
India has a burgeoning e-commerce market, with almost 500 million Indians using the internet in 2018. The market is tipped to grow to $200 billion in a decade, according to Morgan Stanley.