BNP leader Nick Griffin has fought off a bid to have him declared guilty of contempt of court.
The verdict brings to an end an 18-month battle over its membership rules.
The Equality and Human Rights Commission had accused him of failing to comply with an order to remove potentially racist clauses from his party's constitution.
But the High Court rejected its bid to seize BNP assets. Mr Griffin said he had won an "against the odds" victory.
The BNP has already scrapped its "whites-only" members rule following a court challenge from the equality watchdog.
But the commission was concerned the party's new constitution would discriminate against people once they had joined up - in particular a clause requiring party members to oppose "the integration or assimilation of...indigenous British".
'David and Goliath'
It was also concerned about the party's plans to subject would-be new members to a two hour vetting interview.
A court ruling in March upheld these complaints and ordered the party to revise its constitution again.
The watchdog said the BNP was still not complying in full and launched contempt proceedings against Mr Griffin and other party officials.
But Lord Justice Moore-Bick and Mr Justice Ramsey, sitting at the High Court in London, decided on Friday not to take action against Mr Griffin, BNP deputy Simon Darby and party officer Tanya Lumby, saying their "clear conclusion" was that the case could not proceed.
Mr Griffin said the result was "fantastic", arguing the watchdog had pursued a politically motivated campaign designed to bankrupt the party.
"We have won a spectacular David and Goliath victory for freedom," he said.
"The High Court has confirmed that the BNP has acted within the law. We are a legal and legitimate political party which is entitled to organise and campaign for the fair treatment and equality of all the British people."
Confirming that he would seek to recover the legal costs of the case from the watchdog, he added that the BNP "welcome good people of all races".
The watchdog said it did not alter the fact that the party had been forced to change its membership rules and that it had only fully complied with previous judgment in recent months as a result of the latest court action.
"Today's judgment makes no difference to the substance of our action against the BNP," the Commission's John Wadham said.
"The County Court ruled that the BNP's constitution was racially discriminatory. That ruling remains in place and has now, finally, been obeyed by the BNP."
The Commission said it would not be pursuing any further legal action but would be monitoring party rules relating to members' right to vote and attend meetings and whether they were conditioned on members having certain views such as being against mixed-race relationships.
Previous restrictions in this area had been suspended and the watchdog said they should not be re-introduced.
"We will be keeping a watching brief on them to make sure they don't break the law," it added.