The close ally of Prime Minister Gordon Brown will not be prosecuted despite failing to record gifts to her leadership campaign in the Scottish MPs' register of interests.
A clearly relieved Alexander - the sister of International Development Secretary Douglas Alexander - admitted that while she had made a mistake she had not intentionally misled the public.
Her case was one of a string of funding scandals that have dogged Brown since he took over from Tony Blair last June.
Cabinet minister Peter Hain was forced to resign last month after he failed to disclose more than 100,000 pounds in donations for his unsuccessful campaign last year for Labour's deputy leadership.
Alexander, who also admitted her party's check systems had failed, has also come under pressure to resign after she acknowledged receiving a 950 pound donation from a businessman, Paul Green, who is based on the island of Jersey.
He is not registered to vote in Britain and therefore barred from making political donations.
The 44 year-old Alexander said she was acting in accordance with advice given by parliamentary authorities and has since registered the donations.
In a decision on Thursday, the Electoral Commission said it had decided not to make a report to the Crown Office and Procurator Fiscal Service.
It ruled there was insufficient evidence to pursue any charges. "The Commission has concluded that, while Wendy Alexander did not take all reasonable steps in seeking to comply with the relevant legislation, she did take significant steps," it said in a statement.
