Mr Prescott had been accused of accepting £49,667 from the York-based Joseph Rowntree Reform Trust without recording it in the register of members' interests.
The complaint was made by the Conservative spokesman on Transport, the Environment and the Regions, Sir Norman Fowler.
The Commons Committee on Standards and Privileges said on Wednesday that it accepted the advice of the Parliamentary Commissioner for Standards, Sir Gordon Downey, that the complaint was "not substantiated".
Sir Gordon said the donations from the trust were not declarable as they provided no material benefit to him personally or in direct support of his work as an MP and Deputy Leader of the Labour Party.
The trust donated the money to help Labour establish a Regional Policy Commission.
Mr Prescott told Sir Gordon he had no further involvement in handling the commission's finances after the donation was made.
The finances were managed by the commission itself or the John Prescott Campaign/Research Trust, a "blind" trust which handled payments from outside sources, details of which were only known to the trustees.
Mr Prescott said he had been unsure whether the donation needed to be mentioned but declared it in the register in 1995 without specifying the amount.
The following year he failed to declare it.
But Sir Gordon said there had been no need for the donations to be registered.
Inquiry clears Prescott Jnr.
(13 Mar 98 | UK)
Auditors probe Prescott son's house deals
(11 Mar 98 | UK)
Tories attack Prescott over trust fund
(09 Mar 98 | UK)
Labour Party
Conservative Party
The BBC is not responsible for the content of external internet sites.
Parties study Mitchell's peace plan
MPs want answers to air traffic control delay
Lords study cannabis use
Crime falls again but violence on the rise
New Deal backed by 4,000 employers
Brown under pressure as output dips
(From Business)
Commons committee to quiz Campbell
Harman hits back
Number's up for Lottery watchdog
IRA facing division, says former bomber
Labour MP attacks Lord Irvine
Unions ready for working week showdown