A complaint was made to the returning officer at Arun District Council after a by-election in Felpham West ward, Felpham, near Bognor, on December 3 last year.
There were five candidates and Tory winner Elaine Stainton, of Summerley Lane, Felpham, polled 393 votes, with Mary Harvey second with 294 votes.
Independent candidate Mary Harvey and her husband Michael, a district councilllor for Felpham East ward, had alleged that Mrs Harvey's election chances had been damaged by an anonymous leaflet.
They also claimed a letter distributed in the area supporting Mrs Stainton's husband, Coun Alan Stainton, was election material.
But the police and CPS have dropped the case after a two-month investigation because of a lack of evidence.
Mrs Stainton said today: "It was just ridiculous and should never have been brought up."
She added: "This investigation has wasted a lot of professional people's time.
"It was a frivolous complaint with no substance to it and I'm pleased this is the end to an unfortunate matter."
Det Con Sally Holland, of Bognor CID, said: "Whatever was published was not necessarily directed at candidates in the by-election."
Neither Mr nor Mrs Harvey were available for comment.
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