Senior state prosecutor Jaafar Dimaampao said there was no law which could be used to prosecute 27-year-old Reonel
Ramones.
He was arrested after an investigation into the origin of the Love Bug led to a flat which he shared with his girlfriend.
Mr Ramones claimed it was a case of mistaken identity.
Officials did not say if they would bring any charges against other suspects.
The prosecutor said the country's National Bureau of Investigation could not produce the extra evidence ordered by a court to allow a case against Mr Ramones to proceed under the Access Device Act.
The act deals with illegal use of passwords for credit cards or bank accounts for money.
Suspect
The NBI has identified other possible suspects, including former computing student Onel de Guzman.
Mr de Guzman, a former student at the AMA Computer College in Manila, was the brother of Mr Ramones' girlfriend and shared their flat.
Mr de Guzman's lawyer said his client may have accidentally sent out the virus by mistake.
He wrote a thesis on stealing passwords from the internet and dropped out of college after his tutors rejected his software program, saying they did not condone theft.
There was speculation that Mr de Guzman could have unleashed the virus in revenge.
The bug, which spread via an e-mail bearing the line "ILOVEYOU", is believed to have affected at least 45 million computer users and caused billions of dollars of damage.