Mary Harney, the Irish health minister said on Wednesday that the government had received extensive legal advice from a US law firm as well as the government's own attorney general, over the case and had decided not to proceed.
"I think for the state to pursue legal action with no possibility of winning would be dishonest in the extreme," said Harney, who is also Ireland's deputy prime minister.
The decision angered the Irish Hemophiliac Society, whose members have suffered sporadic bleeding episodes that destroy joints and damage organs, and require regular transfusions of blood-clotting products to survive since 2003.
"We're disgusted that it has taken this government eight years to promise they would seek justice, and ultimately to deliver nothing, hiding behind the catchall excuse of legal advice," said Brian O'Mahony, the society's president.
More than half of Ireland's approximately 500 hemophiliacs contracted either hepatitis C or AIDS as a result of contaminated blood products they received, chiefly from US sources through a government-run Blood Transfusion Service Board, in the 1980s.
Of 106 hemophiliacs infected with HIV, 67 have died; of 221 patients who contracted hepatitis C, 91 have died.
The government listed several reasons why a lawsuit in a US court on behalf of Irish victims in the 1980s was likely to fail.
Harney said in most cases the companies that provided the faulty blood products had changed names and ownerships several times, making them tougher targets to pursue.
She stressed that, even were any lawsuit successful, the money would have gone to defray the government's costs, not to benefit victims, who have already received payouts from the government.
Last month, lawmakers also voted to establish a government-supported insurance scheme for infected hemophiliacs who had trouble acquiring private cover for health care.
In 2002, the government agreed to set up a compensation tribunal for victims of the contaminated blood scandal. At that time the government forecast the likely payout to be $90 million in 2002, but as of today has paid victims more than $300 million.