Save our Savings has abandoned its threat of legal action to recover money lost in Icelandic banks but could still recover three-quarters of savings through the administration process.
The coalition of 28 charities, which together lost £50m deposited with Kaupthing Singer & Friedlander, has had 35 per cent of their deposits returned so far through the administration process.
Administrators estimate the charities might eventually receive between 65 per cent and 78 per cent, but the process could take several years.
Dominic Sullivan, director of legal services at coalition member Cats Protection, said: "Charities remain angry at the uneven way in which some charities were compensated but others were not.
"However, with a change in government and the state of public finances we recognise that further political action is unlikely to be productive."
He said the coalition had decided not to proceed with legal action after consulting lawyers.
Two coalition members - Manchester charity The Christie and Naomi House Children's Hospice - withdrew after receiving compensation from their local strategic health authorities.