Britain and Moscow have suffered strained relations from what is said to be one of the murkiest cases of murder and espionage since the Cold War.
Tuesday's announcement threatens to aggravate tensions further between the two nations.
While the CPS said it would seek Lugovoy's extradition, Russia's constitution does not allow for the extradition of its citizens.
|Litvinenko died last year several weeks after|
being poisoned with Polonium 210 [AP]
In a letter dictated on his hospital deathbed, Litvinenko, who had acquired British citizenship weeks before he was poisoned, accused the Kremlin and Vladimir Putin, the Russian president, of his murder.
Moscow dismissed the charge as ridiculous. It has launched its own investigation into Litvinenko's death and denies that its security services played any part.
Litvinenko met Lugovoy and Dmitry Kovtun, another Russian businessman, in the Pine Bar of London's Millennium Hotel on November 1 last year.
Within hours, Litvinenko had fallen seriously ill. He died in a London hospital on November 23.
Lugovoy, a former KGB bodyguard who later worked as head of security for Boris Berezovsky, a businessman, previously laughed off reports that Britain would seek his extradition.
He has denied killing Litvinenko and lashed out at the British media for demonising him.