It also said the FBI's original probe of him - part of the sweeping counterintelligence investigation into Russian interference in the 2016 presidential election - had no "legitimate investigative basis."
The decision by close Trump ally Attorney General Bill Barr effectively reversed 18 months of work by the department and FBI under Barr's predecessors.
It also added fuel to Trump's allegation over the past three-plus years that the Russia investigation was a political "witch hunt."
"He was targeted by the Obama administration and he was targeted in order to try and take down a president, and what they've done is a disgrace," Trump said Thursday.
He took aim at the FBI and Justice Department officials behind the original investigation.
"I hope a lot of people are going to pay a big price, because they're dishonest crooked people. They're scum and I say it a lot. They're scum, they're human scum," he said.
The move came as Flynn, the former Pentagon intelligence chief and a retired three-star general, was fighting possible imprisonment, and minutes after the case's lead prosecutor, Brandon Van Grack, withdrew in apparent disagreement with Barr.
"Our duty we think, is to dismiss the case," Barr told CBS News. "A crime cannot be established here. They did not have a basis for the counterintelligence investigation against Flynn."
Current and former officials associated with the investigation voiced outrage and accused Barr of doing Trump's bidding. "The evidence against General Flynn is overwhelming. He pleaded guilty to lying to investigators," said Jerry Nadler, the Democratic chairman of the House Judiciary Committee.
"And now a politicized and thoroughly corrupt Department of Justice is going to let the president's crony simply walk away."
Former FBI Deputy Director Andrew McCabe, who oversaw the Russia investigation, said Barr's argument is "patently false, and ignores the considerable national security risk his contacts raised."
"Today's move by the Justice Department has nothing to do with the facts or the law - it is pure politics designed to please the president," he said.
The case against Flynn was a cornerstone of the sprawling 22-month investigation by Special Counsel Robert Mueller into Moscow's meddling in the US election.