Mr Assange said he had spent seven years either under house arrest or living inside the embassy, without charge, as he faced sex-related allegations in Sweden, which he has always denied.
Assange insisted the claims were politically motivated, and feared that going to Sweden would result in his extradition to the United States over WikiLeaks' publication of classified U.S. military and diplomatic documents.
The statute of limitations on the rape allegation expires in August 2020, and prosecutors could reopen the case if Assange returns to Sweden before then.
However, British authorities announced that they would still arrest Assange if he were to leave the Ecuadorian embassy because he failed to surrender for extradition to Sweden in 2012. British police say they still intend to arrest him if he leaves the Ecuadorean Embassy.
Both U.S. and British officials have declined to comment on whether there is a warrant for Assange's arrest.
The drop of the investigation comes two days after Chelsea Manning was released from military prison in Kansas after serving seven years of a 35-year sentence for leaking thousands of documents including battlefield reports on Iraq and Afghanistan and State Department cables to WikiLeaks. While in Sweden, Assange hoped to obtain personal protection and also that for his website.
Assange's first public response to the news from Sweden was to share an old photograph of himself smiling on Twitter. "To conduct a preliminary investigation for so many years and today make a decision to close the investigation is something I am very critical of", she said.
But the United Kingdom has not commented on whether it has received an extradition request from the USA, where Mr Assange could, potentially, face trial. "It is a scandal that a suspected rapist can escape justice and thereby avoid the courts", Lawyer Elisabeth Fritz said in a statement.
On September 16, the Stockholm Court of Appeals ruled that the 2010 warrant for Assange's arrest on alleged rape charges remained in force.More news: Former US Rep. Anthony Weiner faces charges in sexting case
Assange recommended he quickly flee to Moscow to evade prosecution in the United States - advice he heeded.
However, London police issued a statement after the Swedish announcement making it clear that Assange was still wanted by them. "Therefore the investigation is discontinued", Ny said.
Swedish prosecutors received a translation of the interrogation four months later, but "all materials were translated into Spanish then into English then back into Spanish then into Swedish", Ny said, making it hard for the investigation to move forward.
But it added that Assange is now wanted for a "much less serious offense" than the original sex crimes claims, and police "will provide a level of resourcing which is proportionate to that offense".
Assange could fight any USA extradition request in the British courts, a process that could take years.
"The decision by the Swedish prosecutor only highlights the fact Mr. Assange has been unlawfully detained for years", Pollack said. "Focus now moves to United Kingdom". CIA Director Mike Pompeo has branded WikiLeaks a "hostile intelligence service", and Attorney General Jeff Sessions said last month that Assange's arrest is a priority.
Ecuador's government welcomed the decision by Sweden, but said it was long overdue.
During last year's USA presidential election campaign, WikiLeaks published emails from Hillary Clinton's staff and the Democratic National Committee which some believe helped to lose her the election to Trump.