However, ombudsman Michael Manthorpe said it had been a "lawful exercise of discretion" by the AFP to drop its investigation.

Mr Taylor created a furore over a letter he sent to Sydney Lord Mayor Clover Moore last year accusing her of driving up carbon emissions by spending more than $15 million on travel for council staff.

But that figure, cited in documents distributed by the minister's office, proved to be wildly incorrect.

Mr Taylor apologised and the AFP abandoned its investigation after determining there was no evidence to indicate the minister was involved in falsifying the information.

The agency said the low level of harm and his apology, along with the resources required for the investigation, were factored into the decision not to pursue the matter.

However, earlier this year the ombudsman received around 150 complaints from members of the public regarding the AFP's decision.

Mr Manthorpe said while the AFP exercised its lawful discretion in ceasing its investigation "it would have been preferable for the AFP to have undertaken at least one more step prior to making a decision to cease its investigation, namely to have made direct inquiries of Mr Taylor or his office".

'This may have helped ensure that the AFP's assessment that further investigation would have been unreasonably resource intensive was soundly based, and provided assurance about the AFP's assessment that further investigation was unlikely to result in sufficient evidence to substantiate an offence," he said.

'The question of whether or not an offence occurred and, if so, by whom remains unresolved."

The report called for the AFP to publish a more detailed statement on its decision-making process and consider the "harm to public confidence in Australia's democratic institutions" as a factor when weighing up investigations.

The AFP accepted both recommendations.

Australian Associated Press