The move leaves the way open for McKinnon to be extradited to the US, where he could face 70 years in jail for illegally hacking into Pentagon, US military and NASA systems.
McKinnon supporters had hoped CPS chief Keir Starmer would authorise a trial in the UK under the Computer Misuse Act.
But in a statement today, Alison Saunders, head of the CPS Organised Crime Division said: "Although there is sufficient evidence to prosecute Mr McKinnon for these offences, the evidence we have does not come near to reflecting the criminality that is alleged by the American authorities."
She said that although his hacking attempts were conducted from the UK, "the target and the damage were transatlantic".
The McKinnon camp will now be pinning their hopes on a final High Court judicial review of the home secretary's decision to allow the extradition, which is expected next month.
They have argued that McKinnon, who has Asperger's Syndrome, was merely looking for evidence of UFOs and did not intend to cause the widespread damage of which he is accused.
He has since won support from both London mayor Boris Johnson and, more recently, Lord Carlile, the government's independent reviewer of terrorism laws.
Gary McKinnon dealt new blow by CPS
By Phil Muncaster on Feb 27, 2009 6:14AM