The decision not to "apply the anti-terrorism law was the fruit of Italian firmness", Italian Premier Matteo Renzi said after chairing a meeting of a task force on the marines.
Italy would continue to push to have the case assessed by international bodies, Renzi was quoted as saying by Italian news agency ANSA.
Earlier in the day in New Delhi, Indian authorities, in a reversal, told the country's Supreme Court that marines Massimiliano Latorre and Salvatore Girone accused of killing two Indian fishermen off Kerala coast in 2012 will not be prosecuted under the SUA law which carries the death penalty.
The Italian cabinet's task force on the issue, in a separate statement, today said hard work by the Italian government helped convince India to soften its stance.
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"Today's decision of the Supreme Court in New Delhi to renounce use of the counter-terrorism law is the result of strong Italian opposition," said the statement.
Earlier this month, Italy had petitioned the UN over the trial of the marines under the SUA law. However, UN Secretary- General Ban Ki-moon asked Rome to resolve the issue bilaterally.
Italy had said use of the terror law equates it with being a terrorist state.