Special Counsel Patrick Fitzgerald told Mr Rove's lawyer Robert Luskin that his client would not be indicted over the alleged outing by top officials of a CIA spy.
"On June 12, 2006, special counsel Patrick Fitzgerald formally advised us that he does not contemplate seeking charges against Karl Rove," Mr Luskin said in a statement.
"In deference to the pending case, we will not make any further public statements about the subject matter of the investigation."
"We believe that the special counsel's decision should put an end to the baseless speculation about Mr Rove's conduct."
Leak claim
Mr Rove's spokesman Mark Corallo said that Mr Rove felt "good" after hearing that a burden that had overshadowed him for months would be lifted.
"He feels elated. He felt confident for quite a while now. This was something that we expected. We are all very happy."
Mr Bush's critics claim senior officials deliberately leaked the name to reporters of the CIA's Valerie Plame to punish her husband, ex-diplomat Joseph Wilson, for criticising the White House's rationale for war in Iraq.
Leaking the identity of a covert operative is a crime under US law.
In October Mr Fitzgerald charged I. Lewis "Scooter" Libby, Vice President Dick Cheney's former chief of staff, with obstruction of justice, perjury and making false statements over the affair.
Mr Rove testified five times before a grand jury used by Mr Fitzgerald to probe the case. The repeated appearances fanned speculation that he would be charged.
Campaign mastermind
The White House said it was "pleased the special prosecutor has concluded his deliberations," said spokesman Dana Perino.
As the man credited with plotting his boss's rise from Texas politics to the White House, Mr Rove's escape will dismay Democrats, who have suffered repeated electoral poundings masterminded by the political guru.
It frees Mr Rove to plan the campaign for November's congressional elections, with opposition Democrats tipped to capitalize on the president's unpopularity and make inroads in the Republican-controlled Congress.
Mr Bush said that a chapter had ended for his political right-hand man Karl Rove, after the President was told he would not be charged in the CIA leak scandal.
Mr Bush also praised Special Counsel Patrick Fitzgerald, who is probing the affair which rattled the White House last year, as he spoke to reporters aboard his presidential jet shortly after take-off after a surprise trip to Baghdad.