Magistrates in the southeast city of Lyon found the 47-year-old not guilty of "inciting discrimination, violence or hatred toward a group of people based on their religious beliefs" over her comments on the campaign trail in December 2010.
Le Pen, who was not in court, faced one year in prison and a fine of 45,000 euros ($49,000) if convicted.
The ruling came after the FN scored a record number of votes in regional elections on Sunday.
France far-right set to make history in first poll since attacks
Although the anti-immigration party did not win control of any regions, its strong showing in the first round of voting panicked mainstream parties, forcing them to band together to strip votes from the FN in the second round.
The party recorded its best-ever electoral score with 6.8 million votes, prompting Le Pen to crow: "Nothing can stop us now."
Le Pen had accused the government of being behind the five-year-old charges that saw her brought to trial just weeks before the regional poll.
She took over the party from her rabble-rousing father Jean-Marie Le Pen in 2011 and has worked hard to improve its image, but it remains staunchly nationalistic, and Marine Le Pen has said migration into Europe recalls the "barbarian invasions" of the fourth century.
After Paris attacks, a darker mood toward Islam emerges in France
While on the campaign trail in December 2010, she complained about places in France where Muslims worshipped in the streets outside mosques when they were full.
"I'm sorry, but for those who like talking a lot about World War II, if it comes to talking about the Occupation, we can talk about it, because that (Muslims praying on the street) is the occupation of territory," she told a crowd in Lyon.
"It is an occupation of part of the territory, suburbs where religious law is applied. Sure, there are no armoured vehicles, no soldiers, but it is an occupation nonetheless and it weighs on residents."
After the comments, which provoked outrage in France, Le Pen was investigated but the probe was closed without further action.
French far-right leader goes on trial for inciting hatred against Muslims
However, an NGO's complaint saw the judicial enquiry re-launched in January 2012.
Le Pen was charged in July 2014 after her immunity as a member of the European Parliament was lifted following a vote requested by French authorities.
Despite her acquittal, the FN still faces legal woes, including fraud charges over campaign financing.
The party has also been rocked by bitter infighting and a family feud which saw Marine oust her 87-year-old father over his anti-Semitic diatribes earlier this year.
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