Video footage appearing to show the officers holding down Alton Sterling as they fired their weapons sparked days of protests in Baton Rouge.
News of the decision leaked to US media on Tuesday before the city mayor or the Sterling family had been told.
People soon began gathering outside the shop where the tragedy happened.
A vigil was organised for Tuesday night.
The civil rights investigation was opened soon after the 37-year-old was killed outside the grocery shop he was selling CDs.
At the time, a series of fatal police shootings involving African-Americans had sparked a debate about police use of force.
The federal decision not to prosecute the two officers comes with a new US government and a new head of the Justice Department, Attorney General Jeff Sessions.
It does not mean the state of Louisiana could not bring its own charges.
What happened when Sterling died?
Police were called after reports of a man threatening people with a gun outside a shop.
Mobile video footage appeared to show two officers wrestling a man in a red shirt to the floor.
One of the officers pinned the man's arm to the floor with his knee and then appeared to pull out his gun and point it at the man.
A voice is heard shouting: "He's got a gun!" Then shots ring out and the camera moves away.
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Mr Sterling, a father of five, died at the scene.
Police said he refused to comply with the officers' commands so they used a stun gun to bring him to the ground.
The officers say they saw a gun in one of his pockets and saw his arm move there as if he was reaching for it, just before he was shot.
A turbulent time
There were nearly 200 arrests in the protests over Mr Sterling's death, which preceded a turbulent couple of weeks in US race relations.
A day after the fatal confrontation, a black driver in Minnesota was shot dead in a traffic stop, and in the same week five police officers in Dallas were killed.
Less than two weeks later, three police officers in Baton Rouge were killed in an ambush, further inflaming tensions in that community.
Louisiana Governor John Bel Edwards, who called the video footage "disturbing" called for a federal investigation into Sterling's death.
Two other fatal police shootings were in the news on Tuesday.
In Texas, police changed their story in what happened when an unarmed black teenager was shot and killed on Saturday night as his car drove away from police.
And a former officer in South Carolina pleaded guilty to violating the civil rights of an African American he shot in the back as he ran away.
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Life in Baton Rouge
The BBC went to one of the city's toughest neighbourhoods, postal code 70805, which adjoins the district where Mr Sterling was killed.
[BBC SOURCES]
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