The ministry ran a consultation between 25 October 2007 and 1 February 2008 on whether to extend the list of "public authorities" covered by the act to "contractors who provide services that are a function of a public authority".
However, in a response issued this month, the ministry said that the benefits of bringing charities under the auspices of the act would be significantly outweighed by the "inevitable" negative impact on their charitable causes brought by the extra cost of compliance.
But it added that the Government would "expect charities to respond as openly and promptly as possible to reasonable requests for the information they hold".
Stephen Bubb, head of chief executives body Acevo, welcomed the decision. He said: "I support the act, but it should not be extended by stealth to the third sector.
"Charities should always be transparent, but it is an absurd idea that because you take a penny of public money you should have to respond to hundreds of vexatious demands for information."
Belinda Pratten, head of policy at the NCVO, said extending the act would also have undermined sector independence.
"Information about dealings between voluntary and community organisations and public bodies can already be accessed through the body concerned," she said.
But Catherine A'Bear, chief officer of corporate affairs at the Shaw Trust, which delivers many government contracts, said she endorsed extending the act to charities so long as it did not compromise commercially sensitive information.
"The Shaw Trust is committed to being transparent and we recognise the important role that the act has in doing this," she said.