Bhutto, her husband Asif Ali Zardari and several others were investigated after suspicions were raised by foreign currency operations at a bank in the eastern Spanish town of Onteniente and the purchase of a house in Spain.
But Joaquin Banos, spokesman for the prosecutor's office at the Superior Court in the eastern region of Valencia, said prosecutors were unable to find sufficient evidence of wrongdoing during more than two years of investigations.
Banos said the case became unsustainable after the Pakistani government of President Pervez Musharraf, which took part in the prosecution, decided not to proceed with it earlier this year.
Bhutto has also been under investigation for corruption and money laundering in Pakistan and Switzerland.
The two-time prime minister returned to Pakistan in October after eight years in exile following negotiations with Musharraf. She plans to run in parliamentary elections slated for January.
Bhutto was the first female premier in the Muslim world but her governments collapsed in 1990 and 1996 over corruption allegations.
The discovery of the submarine has unveiled a few "inconsistencies." For example, how can one explain the fact that the sub was found where it needed to be searched for from the start?
This problem is not limited to the situation with the "whale prison" in Russia's Far East, because many people buy tickets to go to oceanariums and turn a blind eye to the problem