The Food Standards Agency (FSA) said its investigation has thoroughly examined the possibility that food waste at the Bernard Matthews cutting plant at Holton may have been stored inappropriately.
The decision not to press charges will come as a relief to the poultry firm, which has protested its innocence of any wrongdoing following the discovery of the virus.
Moreover, the decision may go some way to persuading export markets, which have since banned British poultry from entering their counties, that trading should resume.
Any procesution would have had to meet the UK code for crown prosecutors, which says that no prosecution may go ahead unless the prosecutor finds there is sufficient evidence to provide a realistic prospect of conviction.
The investigation concluded there was no evidence of any offences under animal by-products laws, for which the Department for the Environment, Food and Rural Affairs (Defra) is the enforcement authority.
"We have carefully scrutinised and considered the evidence in this case and concluded there is insufficient evidence to provide a realistic prospect of conviction," the FSA stated.
"Accordingly, we have decided not to proceed to a prosecution in this case."
After consideration of further by-product and hygiene regulations, which the regulator itself enforces, insufficient evidence was found to pursue prosecution.
A total of 159,000 of Bernard Matthews birds were culled following the discovery of the H5N1 outbreak earlier this year.
The company is still recovering from falls in demand by up to 40 per cent for some poultry products following the scare, which led to hundreds of workers at its plants being laid off.
The last UK bird flu scare that took place in Scotland in March 2005, when H5N1 was found in a dead wild swan.
Then, chicken sales growth slowed by 10 per cent, although consumption bounced back within a few months, according to ACNielsen UK .
A survey released in January 2007 by the market analyst found that 78 per cent of consumers worldwide think bird flu will have a negative impact on the economy.
However, the online survey of 25,000 respondents in 45 countries found that only one in ten would eat less poultry as a result of the threat.
About 57 of consumers said they are concerned about the safety of their food.
The UK's uncooked poultry market is worth £2.3bn a year, according to ACNielsen.
The UK exported 271,000 tonnes of poultry meat worth £220.4m in the 12 months to October 2006, according to the British Poultry Council.