The nine priests, along with two laymen, had been charged with "sexual abuse without penetration, exhibitionism, and concealment of evidence" involving an underage boy between 2004 and 2007.
But the court in the southern city of Granada, where the alleged abuse took place, ruled their accuser, now aged 25, should have brought a case within three years of turning 18.
One priest, however, is still charged with "continued sexual abuse, with the introduction of a bodily member anally and attempt to introduce the penis", according to the ruling dated January 26.
If convicted, the clergyman faces up to 10 years behind bars.
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He and his 11 initial co-accused were charged last month with sexual abuse or complicity in abuse. The boy was 14 when the alleged abuse began.
The paedophilia scandal is the biggest yet involving the Catholic Church in Spain, involving a record number of suspects.
The alleged victim says he was raped and made to perform sex acts with one of the priests at a villa with a swimming pool. Others allegedly also took part or turned a blind eye to the acts.
Pope Francis said he had ordered a church investigation into the case after the complainant -- who has not been identified -- wrote to him, telling him he had been molested as an altar boy.
The Argentine pontiff, who has taken a zero-tolerance approach to clerical sex abuse, told reporters on November 25 that he heard of the case "with great pain, very great pain, but the truth is the truth and we should not hide it".
Spanish children's rights association Prodeni, which is a civil plaintiff in the case, said it would appeal the court's decision to drop the charges.
"The public must know that we are going to use every appeal possible," the group's president, Juan Pedro Oliver Gimenez, told AFP.