Membership or association with the Muslim Brotherhood is a "possible indicator of extremism" but it will not be banned, the prime minister has said.
A long-delayed review of the international Islamist network found parts of it had an "ambiguous relationship with violent extremism".
David Cameron told MPs the group's activities would be kept under review.
The group's British lawyers say the Brotherhood will legally challenge the "deeply flawed" findings.
In a statement, the group said the UK's position was unjust.
The Muslim Brotherhood has many different branches and affiliated organisations across the world - and remains banned in some parts of the Middle East.
Some groups proscribed under terrorism laws in the UK adopted the Brotherhood's core thinking about a global Muslim identity into their own ideologies.
The prime minister ordered a review of the Brotherhood's activities in the UK more than two years ago, amid reports that the government was under pressure from some Middle East allies to ban the group.
The final report has been repeatedly delayed amid internal Whitehall wrangling over what findings should be made public and whether a potential ban would be enforceable or simply counter-productive.
The decision not to ban the organisation may have a diplomatic or trade cost amid pressure to act from Egypt, the United Arab Emirates and Saudi Arabia, which have designated the Brotherhood a terrorist group.
