They said a more thorough investigation was needed.
Twelve people died after the Michigan city switched its water supply to the Flint River in order to save money.
An outbreak of Legionnaires' disease followed, and residents were found to have drunk water poisoned with lead.
Nearly 100,000 residents of Flint were left without safe tap water and at risk of lead poisoning.
Seven officials had already taken plea bargains.
The mayor of Flint, Karen Weaver, welcomed the prosecutors' decision to drop all charges:
"I was happy with the announcement that was made today because it let's us know they're taking us seriously.
"They know justice has not happened for the residents of the city of Flint and that we deserve a full investigation."
Prosecutors who assumed control of the investigation in January after a new attorney general was elected said "all available evidence was not pursued" by the previous team of prosecutors.
Some residents were sceptical after Thursday's announcement.
"We don't know if new charges will be filed," LeeAnne Walters, who is credited with exposing the lead contamination, told Associated Press.
"It feels kind of degrading, like all that we went through doesn't matter. Our city was poisoned, my children have health issues and the people responsible just had all the charges dropped against them."
The contamination was traced to the city switching its water supply away from Detroit's system, which draws from Lake Huron, and instead using water from the Flint river.
Flint was in a financial state of emergency and the switch was meant to save the city millions of dollars.
But the water from the river was more corrosive than Lake Huron's water, causing lead - a powerful neurotoxin - to leach from the pipes.
The city has since switched back to using Detroit's water system.
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