A previously secret report obtained by The New Zealand Herald shows Solicitor-general Paul Neazor found witness statements were not strong enough to mount a case that two police officers planted a shell case from Mr Thomas' rifle in the Crewes' garden to link him to the crime.
The accusation that police planted evidence to get a conviction has been at the centre of controversy over the case for the past 40 years.
A royal commission in 1980 said two police officers, Detective Inspector Bruce Hutton and Detective Len Johnston, buried the shell case to implicate Mr Thomas in the double murder of Harvey and Jeanette Crewe at their farmhouse in Pukekawa, south of Auckland, on June 17, 1970.
Mr Thomas was eventually pardoned in 1979 after two trials, a series of unsuccessful appeals and a wave of public protest that led to the personal intervention of then Prime Minister Robert Muldoon.
His National government set up the commission, which was led by outspoken Australian judge Justice Robert Taylor.
After several months of often bitter hearings, marked by angry exchanges between the judge and police lawyers and witnesses, the commission's report laid the blame squarely with the police.
But no officers were charged with planting the shell case, angering Mr Thomas and his supporters.
A year later, Mr Neazor recommended no action be taken, but until now his reasons have remained secret.
In his report to police in December 1981, Mr Neazor recommended against prosecution for two main reasons, both related to what he saw as weaknesses in witnesses' evidence.
He says the commission concluded the shell case had been planted by the detectives just before its discovery in October, because police had combed the garden in August.
If Mr Thomas had dropped the case on the night of the murder, the commission ruled, police would have found it by the August search at the latest.
Mr Neazor said a prosecution would struggle to prove this claim, as it was based on the evidence of one witness, Graeme Hewson, who helped police in their search.
Four police officers said the garden was not thoroughly searched in August, and another said it could not have been.