"I do not consider there to be any reason to suspect that he has committed rape," chief prosecutor Eva Finné said in a statement explaining her decision.
The statement was issued at 4.30pm on Saturday to confirm that Assange was no longer a suspect and is thus no longer required to contact the police.
"She (Eva Finné) has adjudged that he is not suspected of rape. There is thus no reason to retain a warrant for his arrest," Karin Rosander at the Prosecution Authority confirmed.
The Expressen daily had reported on Saturday morning that a warrant had been issued for the arrest of Julian Assange in connection with alleged incidents in Stockholm and Enköping.
A source close to the case told the newspaper that two women in their twenties went to the police in Stockholm on Friday to speak about their recent encounters with Assange.
The Prosecution Authority released a statement on Saturday morning in which it revealed that the warrant was based on “one report of rape and one report of molestation. A warrant has been issued for the person's arrest since there is a risk that he could hamper the investigation.”
Kristinn Hrafnsson, a colleague of Assange's who spoke to news agency AFP from Iceland earlier on Saturday, rejected the charges against Assange as a fabrication, but confirmed that Assange remained in Sweden and planned to turn himself in.
There has been widespread speculation in social media on Saturday that the allegations were completely unfounded and had an ulterior motive, an accusation that WikiLeaks, and comments attributed to them on Twitter, have also helped to forward.
"He didn't know of the charges until he read them in the right wing tabloid Expressen this morning", Hrafnsson said. "There are powerful organisations who want to do harm to WikiLeaks."
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The WikiLeaks founder has also personally denied the accusations in an email to Stockholm daily Dagens Nyheter.
“Why these accusations are coming at this point in time is an interesting question. I haven't been contacted by the police. The allegations are false,” Julian Assange said.
Assange has spent time in Sweden over the last week as a guest of the Association of Christian Social Democrats. WikiLeaks chose to move its servers from the United States to Sweden in 2007 as Assange believed the site would benefit from Swedish laws protecting journalists' sources.
The pentagon recently called on WikiLeaks to halt the publication of 70,000 leaked classified documents from the US-led war in Afghanistan. But Assange instead vowed to press ahead with the publication of a further 15,000 secret documents.