The campaign, being run by the Metropolitan Police, encourages people to report anyone that they suspect is engaged in terrorist activities, and features a pair of female eyes surrounded by a black background.
British Islamic groups have attacked the campaign and said that the eyes look like a Muslim woman with most of her face covered by a veil. The campaign has sparked comparisons with the infamous Conservative Party "demon eyes" poster attacking Tony Blair in the run-up to the 1997 election.
The Advertising Standards Authority investigated the campaign earlier this month when it received complaints that it was racist, but the watchdog said today that it would not be taking those complaints any further.
The decision will anger UK Muslim groups, who this week slammed the campaign and called it a "stupid mistake".
Speaking at a Muslim Safety Forum Meeting on Wednesday, Abdur Rahman Jafar, who represents the Muslim Council of Britain on the Safety Forum, said that they were "infuriated" by the poster.
Representative groups for the Muslim community demanded that the ad be withdrawn and said that it links Islam to acts of violence.
"It associates terrorism with Islamic women's dress. I don't know why they keep making these stupid mistakes," Massoud Shadjareh, of the Islamic Human Rights Commission, said.
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