The West Midlands Crown Prosecution Service today said there was "insufficient evidence" to charge the 59-year-old with inciting religious hatred.
Mr Kitson quit his position on Worcestershire County Council in May just days after securing one of two Stourport seats up for grabs on the council.
A series of anti-Semitic and anti-Islamic posts were discovered on Mr Kitson's Facebook profile page, sparking concerns from fellow councillors and constituents that they were 'inciting racial hatred'.
The CPS said Mr Kitson had taken part in a voluntary interview and his computer and mobile phone was examined.
Jayne Salt, Head of the West Midlands CPS Complex Casework Unit, said today: "Having had an opportunity to review all of the evidence which was made available to us by the police, we looked at a number of options to examine whether any criminal offence had been committed.
"In order to prosecute any case, according to the Code for Crown Prosecutors, we have to be satisfied that there is sufficient evidence to provide a realistic prospect of securing a conviction and that it is in the public interest to pursue the prosecution. In this case there was insufficient evidence to provide a realistic prospect of securing a conviction.
"In order to prove an offence of inciting religious hatred, firstly the words, material or behaviour must be threatening. Language, images, and behaviour that may be considered abusive or insulting are not covered by these provisions. Secondly the requirement in all cases is that the person intended to stir up religious hatred. A mere likelihood that this may result is not sufficient in law.
"The evidence in this case was sufficient to prove to a jury that Mr Kitson was posting these messages by copying them to his Facebook page. Whilst many will have found them wholly socially unacceptable, there was not sufficient evidence to show that they were either threatening or posted with an intent to stir up religious hatred. Therefore, this did not reach the evidential standard required to enable a prosecution.
"As the case did not pass the evidential stage, we have advised the police to take no further action against Mr Kitson.
"Where we have sufficient evidence that a crime has taken place because of hostility to someone's religion, we will robustly prosecute such cases.
"People from all communities have a right to be protected from the prejudice at the root of religious hate crime, and we are determined to play our part in this."
The CPS said case law and legislation suggest that reference to Muslims and Islam are as specific religious groups not racial groups, thus the references in this case were deemed as religious not racial.