Staffordshire Police Chief Constable Gareth Morgan said he was "frustrated and disappointed" there would be no justice for the family of Mr Nunes, who was gunned down in Pattingham in 2002.
The investigation was reopened last year following the collapse of the original case over police failings, providing the family with fresh hope they would finally get justice.
A suspect was identified as part of the new probe but the force said the Crown Prosecution Service had refused to bring a prosecution as failings from the original investigation meant "that it would be an abuse of the legal process to do so".
Mr Morgan said Mr Nunes' family had been informed of the development, which will likely come as a devastating blow.
The chief constable said the case remains open and would be "subject to regular reviews".
He insisted he stood by his decision to reopen the investigation.
Mr Morgan said: "I am frustrated and disappointed that we are unable to bring justice to Kevin Nunes and his family.
“The decision I made to re-investigate the original inquiry was a significant one for his family, the wider community and the force, but absolutely the right one.
“Although new lines of enquiry were identified around a suspect, the CPS has concluded that it is not possible to pursue a prosecution against this suspect due to failings from the original investigation.
"I have already apologised for the significant police failings during the original investigation into the murder of Kevin Nunes in 2002 and it is extremely frustrating that it these failings that have led to the CPS’s decision. Kevin’s family have been told about this decision today by the CPS and the detectives who have led the re-investigation.
“Once again I want to say to Kevin’s family how sorry I am that we have still not been able to bring justice for his death.
“The case remains open and will be subject to regular reviews to identify any new lines of inquiry.”
Mr Nunes, 20, who was from Whitmore Reans, in Wolverhampton, was found dead in a rural country lane in Pattingham, South Staffordshire, in 2002 having suffered five gunshot wounds.
Police said he had been killed by rival Black Country drug mobs.
But the case collapsed when it emerged failings by detectives and the handling of the case’s star witness were never revealed to the judge, jury or barristers at the murder trial.
Detectives have pored over thousands of documents and re-tested evidence using new techniques as part of the new investigation and questions may now be asked about the wisdom of the decision to start again.