Formula 1 bosses were not convinced Ferrari's engine was always legal in 2019 but did not take further action because of the difficulty of proving it.
Governing body the FIA explained its stance in a statement responding to seven teams expressing their "strong objection" to a confidential settlement with Ferrari.
The FIA "decided further action would not necessarily result in a conclusive case".
This was because of "the complexity of the matter and the impossibility of providing unequivocal evidence of a breach".
Seven of the 10 teams on Wednesday issued a joint statement saying they would "pursue full and proper disclosure" and "reserve our rights to seek legal redress" over the settlement.
They questioned whether the FIA's decision met its "responsibility to act with the highest standards of governance, integrity and transparency".
The only teams not to sign the statement were Ferrari and their engine customers Haas and Alfa Romeo.
What are the FIA's justifications for its actions?
The FIA insisted in its response that it had acted within its rules, both in deciding to settle the matter and in keeping the terms of that agreement confidential.
Its statement said: "Extensive and thorough investigations undertaken during the 2019 season raised suspicions that the Scuderia Ferrari power-unit could be considered as not operating within the limits of the FIA regulations at all times.
"The Scuderia Ferrari firmly opposed the suspicions and reiterated that its PU always operated in compliance with the regulations.
"The FIA was not fully satisfied but decided that further action would not necessarily result in a conclusive case due to the complexity of the matter and the material impossibility to provide the unequivocal evidence of a breach.
"To avoid the negative consequences that a long litigation would entail, especially in light of the uncertainty of the outcome of such litigations and in the best interest of the Championship and of its stakeholders, the FIA, in compliance with Article 4 (ii) of its Judicial and Disciplinary Rules (JDR), decided to enter into an effective and dissuasive settlement agreement with Ferrari to terminate the proceedings.
"This type of agreement is a legal tool recognised as an essential component of any disciplinary system and is used by many public authorities and other sport federations in the handling of disputes.
"The confidentiality of the terms of the settlement agreement is provided for by Article 4 (vi) of the JDR."
The FIA added that it would "take all necessary action to protect the sport and its role and reputation as regulator of the F1 world championship".
What led to the investigation?
The FIA's investigation into the Ferrari engine last year came in the context of suspicions from rivals - particularly Mercedes and Red Bull - about the extent of the Italian team's advantage on the straights.
The issue came to a head at the US Grand Prix in October when the FIA issued a rules clarification in response to a detailed series of questions from Red Bull.
These centred on whether it was possible to interfere with the mandatory fuel-flow meter in ways that made it bypass the regulation limit of 100kg per hour.
The FIA clarification made it clear that any intervention with the fuel-flow meter that could lead it to exceed the maximum permitted fuel flow would be against the rules.
In F1's complex turbo-hybrid engines, the fuel-flow limit works to promote efficiency and is effectively a ceiling on the amount of power an engine can produce.
It means teams cannot increase power simply by increasing the rate of fuel flow through the engine, and must do so instead via efficiency savings, in other words increasing the amount of power extracted from the available fuel by advances in the engine/hybrid system.
The FIA clarification was issued on the morning of qualifying in Austin, and later that day a run of six consecutive Ferrari pole positions came to an end. The team did not set a pole position in any of the remaining two races in Brazil and Abu Dhabi either.
Ferrari team principal Mattia Binotto said the two matters were not related, and that apparent differences in the car's straight-line performance seen by rivals following the ruling were caused by the team changing the way they ran it and adding more downforce and therefore drag.
What will happen now?
Rivals objected to the confidential settlement between the FIA and Ferrari aimed at concluding the matter because they were concerned that it did not make it clear whether Ferrari's engine was legal at all times last year or not.
As a result, they are unlikely to be mollified by the FIA's admission that it was unable to allay its own suspicions or their feeling that they were unable to prove them.
Teams are likely to see that as an admission by the FIA that it is not capable of policing its own regulations - a highly unsatisfactory position for a competition that is based on fairness and equality of opportunity.
As such, it is likely that rivals will not accept this latest step from the FIA as a satisfactory conclusion and will seek further explanations.
However, the FIA and Ferrari are likely to point to the regulations that cover confidential settlements such as this.
These state that immunity granted in this way is subject to a number of conditions, including:
- "Cooperating with the FIA in good faith, meaning telling the whole truth and refraining from destroying, falsifying or concealing useful information or evidence"
- "Providing the FIA with genuine, total and permanent cooperation throughout the entire investigation", including "testimony in accordance with any request and in any form required by the FIA" and "remaining at the disposal of the FIA to reply swiftly to any questions it may have".