The decision comes after Austria requested judicial assistance from the Dutch following a March 2015 speech by Wilders at a gathering of Austria's far-right Freedom Party (FPÖ).
"Insulting a religion or a religious community in the Netherlands, as opposed to Austria, is not punishable by law," the public prosecutor's office said, adding that incendiary words would have to target a specific group within that religion.
"Dutch prosecutors therefore turned down Austria's request," the prosecutors said.
The prosecution service conceded that "some individuals may have been insulted by the statements. But that's a separate issue, and not something that can be prosecuted."
Wilders is said to have told an audience that "Islam is an ideology of war and hatred" and "Islam calls on people to become terrorists -- the Koran leaves no doubt about it", according to Dutch media reports.
The speech spurred an Austrian-based Muslim organisation to file a complaint of incitement against Wilders.
Wilders responded Wednesday in a tweet, saying: "Good. The only correct decision. The truth must be able to be told, specifically about the Islam!"
A local Dutch court convicted him of discrimination in December, but acquitted him on a charge of hate speech over comments he made about Moroccans living in the Netherlands during a 2014 campaign rally.
He has previously compared the Koran to Adolf Hitler's "Mein Kampf", which he wants banned, and his Freedom Party (PVV) has vowed to close all mosques and Islamic schools in the Netherlands.
In March elections this year, the PVV failed to live up to early predictions that it would top the polls, though it still managed to come in second, increasing its number of MPs to 20 from 12 in the outgoing parliament.