Instead, a badger vaccination plan will be initiated, Environment Minister John Griffiths said.
The Farmer's Union of Wales called the decision a "cowardly betrayal" while the Royal Society for the Protection of Animals said it was "delighted and relieved."
The previous Welsh government had planned a pilot cull of badgers in west Wales, but a review of the science involved in controlling bovine TB was commissioned after the country's 2011 elections.
"At present I am not satisfied that a cull of badgers would be necessary to bring about a substantial reduction in cases of TB in cattle," Griffiths said.
Authorities said they hoped to start vaccinating within two to three months, when badgers would be trapped in cages, vaccinated, and then marked so they are not vaccinated multiple times.
Rock musician Brian May, who has campaigned against the cull plan, hailed the news.
"It is now time for the British government to wholeheartedly commit to a program of vaccination -- the only route which can guarantee, long term, the elimination of bovine TB from our British countryside," he said.