The decision by Information Commissioner Elizabeth Denham means WhatsApp, which has 1.5 billion monthly users, will not be fined and that any future sharing of user data would be governed by European privacy rules that enter into force in May.
"I am pleased to state that WhatsApp has now signed an 'undertaking' wherein they have given a public commitment not to share personal data with Facebook," Denham said in a blog post on Wednesday.
The decision marks an important resolution for Facebook, the world's biggest social network, which is under fire in the United States over the propagation of so-called 'fake news' during campaigning for the 2016 presidential election.
Facebook is also under scrutiny over its handling of user data to target online advertising - a business that it, together with Google, has come to dominate globally.
The UK privacy authority opened its probe in August 2016 after WhatsApp, which Facebook bought for $19 billion in 2014, updated its privacy policies to say that it would share information with the Facebook 'family' of companies.
The reasons given were to help to improve services, fight spam and improve user experiences - including making product suggestions and showing relevant offers and advertisements.
At the time, data protection officials expressed concern that users of WhatsApp were not being fully informed about how their data was being used nor their consent sought.
Similar investigations are underway in Germany where the country's main anti-trust office, the Federal Cartel Office, has found that Facebook abused its dominant position in its handling of user data - including from its online properties WhatsApp and Instagram.
France's data privacy watchdog said in December that it might fine WhatsApp if it does not comply with an order to bring its sharing of user data with Facebook into line with French privacy law.
Denham said that she had been assured by WhatsApp that no data had been shared with Facebook other than as a data processor - in line with a pledge that was given after the UK probe was opened.
"WhatsApp cares deeply about the privacy of our users. We collect very little data and every message is end-to-end encrypted," said a WhatsApp spokesperson in response to the UK decision.
"As we've repeatedly made clear for the last year we are not sharing data in the ways that the UK Information Commissioner has said she is concerned about anywhere in Europe."
© Thomson Reuters 2018