Ms Law, who is now chief executive of Wokingham BC, was criticised over the awarding of contracts in Doncaster in an Audit Commission public interest report earlier this year.
No further action was taken by the commission but the matter was subsequently reported to South Yorkshire Police who launched an investigation.
Doncaster's elected mayor Martin Winter (Ind) was alleged to have been the source of the complaint, but denied he has denied any involvement.
LGC has learned from Ms Law's representatives that the investigation has been dropped - although a South Yorkshire Police spokeswoman said she was unable to immediately confirm the development.
Alastair Robertson, honorary secretary of the Association of Local Authority Chief Executives, was scathing of his criticism of Mr Winter.
“It is no surprise that Susan Law has been cleared of any wrongdoing,” he said.
“She has already been exonerated by three internal Doncaster inquiries. The whole exercise has been a waste of police time.
“Of course the Mayor has claimed that it wasn’t him who went to the police but he clearly supported the move and made public statements to the auditors accusing Susan.
“It is now time for him to stop accusing everyone else for the troubles of Doncaster and show the responsibility that goes with his position.”
Ms Law left Doncaster after well-publicised disagreements with Mr Winter in early 2007 and her appointment at Wokingham was announced the following September.