Majed Abdulaziz Al-Saud, 28, was arrested last month on suspicion of forced oral copulation with a worker at his Beverly Hills mansion.
But prosecutors say they do not have enough evidence against Mr Al-Saud.
Mr Al-Saud`s lawyer, Alan Jackson, said his client was innocent and claimed the case was "some kind of shakedown for money".
The case has been forwarded to the city attorney for a possible misdemeanour charge, Jane Robison, a spokesperson for the city attorney`s office, said.
There were four alleged victims and one did not cooperate with authorities, Ms Robison added.
Police were called to Mr Al-Saud`s estate after a neighbour saw a bloodied woman calling for help and trying to climb over a wall.
Two days later, three women who worked as servants at the mansion sued Mr Saud, alleging sexual battery, false imprisonment and intentional infliction of emotional distress.
This case will be reviewed by a prosecutor in the city attorney`s office, a spokesman said.
Saudi prince avoids charges over alleged sex assaults in LA
20 October 2015
Read: 1280
Los Angeles prosecutors say they will not press charges against a Saudi prince accused of sexual assault.
