The ruling appeared to be a compromise solution to political tensions that have polarised
Six of the court's 11 judges voted in favour of closing down the AKP, just one short of the seven required to impose a ban, court president Hasim Kilic said.
But the court, he stressed, is still sending the party a "serious warning" by cutting half of the treasury funds it was entitled to this year.
"I hope the party in question... will get the message it should get," Kilic said.
The judges who supported the financial sanctions agreed that the AKP had become a "focal point" of anti-secular activities as the chief prosecutor argued "but not that serious" to deserve a ban, he said.
A solemn Prime Minister Recep Tayyip Erdogan welcomed the outcome, saying it would strengthen Turkish democracy, and pledged commitment to secularism.
"The Justice and Development Party, which has never been a focal point of anti-secular activities, will continue to defend the basic principles of the republic," he said.
The AKP will carefully study the ruling and step up efforts to heal political divisions, he said, reasserting commitment also to
Closing down the AKP, which dominates parliament and is still the country's most popular party, could have sparked political chaos, wrecked
The AKP, which won a resounding re-election victory last year, was accused of seeking to install a regime based on Sharia law, charges that it vehemently denies.
The prosecutor had also asked the court to bar President Abdullah Gul, Erdogan and 69 other AKP officials from party politics for five years.
The EU and Western countries also welcomed the ruling.
Swedish Foreign Minister Carl Bildt said "an attempt to stage a thinly disguised legal coup" against Erdogan's government had failed, while his British counterpart David Miliband urged
"We have confidence in
"The court has rendered an opinion, and we're going to continue to work with this government. We work quite well with them," McCormack said.
The European Union's French presidency appealed to the political players "to resolve the divergences in a spirit of dialogue and compromise while respecting the state and fundamental liberties."
Six of the court's 11 judges voted in favour of closing down the AKP -- just one short of the seven required to implement a ruling -- but the court decided to punish the party with financial sanctions instead.
The case was seen as the latest round in a bitter power struggle between the AKP and hardline secularist forces -- including the army, the judiciary and academia -- which has simmered since the party nominated Gul for president in April 2007.
The prosecutor had argued that the secular system was in grave danger and accused the AKP of using the advantages of democracy to achieve a Islamist regime "which involves violence."
His key argument was an AKP-sponsored constitutional amendment passed in February that aimed to abolish a ban on the Islamic headscarf in universities.
The prosecutor also cited attempts by AKP municipalities to ban or restrict alcohol sales and promote religious education and Islamist lifestyle.
The AKP, a coalition of religious conservatives, pro-business liberals and mainstream centre-right politicians, first came to power in 2002 and won praise for its pro-EU, business-friendly policies.