The photo in the advert was taken on Brehec beach on the Cotes dArmour. Recent warm weather has seen the massive spread of the algae which develop in shallow waters, such as the wide bays in Brittany, fed by the chemicals used in farming seeping into the water.
The photograph was accompanied by the words Bonnes vacances (Happy holidays).
Council Vice-President Thierry Burlot said he was convinced the campaign was aimed at highlighting the problem of the algae and not at harming the tourist industry in the region.
France Nature Environnement President Bruno Genty said he was delighted by the decision not to go ahead with the complaint.
"We would prefer the council to concentrate its energy on the fight against the spread of the green algae which is far from over," he said.
At the beginning of 2010, the government launched a five-year, 134-million-euro plan, to clean up the region which last year produced 40,000 tonnes of algae waste. Two treatment factories already exist in Côte d'Armor and there are plans to build two more in Finistère.
Despite the government plan, environmentalists claim not enough is being done to tackle the source of the problem which is blamed on industrial farming.
The algae, known locally as "sea lettuce", can be consumed when freshly picked. But when decay sets in deadly hydrogen sulphide is released into the atmosphere.