There was "no case to answer", the company said, denying any wrongdoing.
The Guardian newspaper had alleged that more than one billion pounds (two billion dollars) was paid into accounts controlled by the former Saudi Arabian ambassador to the United States, Prince Bandar bin Sultan, over at least a decade.
The Guardian said it understood that details of the payments had been uncovered by Britain’s Serious Fraud Office (SFO) as part of its probe into transactions behind the 43-billion-pound Al-Yamamah deal signed in 1985.
But the SFO stopped the investigation following a review by attorney general Lord Peter Goldsmith.
"All the information regarding the Al Yamamah contract in our possession has been made available to the Serious Fraud Office over the last two and a half years," a BAE spokeswoman said.
"And, after an exhaustive investigation, it was concluded, over and above the interests of national security, that there was and is no case to answer."
"As the media itself has reported, a spokesman for the attorney general has confirmed that nothing in today’s media reports alters this position," she added.
"The Al Yamamah programme is a government-to-government agreement and all such payments made under those agreements were made with the express approval of both the Saudi and the UK governments.
"We deny all allegations of wrongdoing in relation to this important and strategic programme and we will abide by the duty of confidentiality imposed on us by the agreement."
The SFO had been investigating allegations that BAE Systems had set up a secret slush fund for members of the Saudi royal family to secure continued business, dating back to the Yamamah deal.
But Goldsmith, the government’s most senior legal advisor, announced in December that the probe had been shelved because of its potential to harm national and international interests.
