The indictment handed up last summer marked the second time a Cape May County grand jury alleged Gary DeMarzo used public funds to pay personal legal and related expenses while serving as Wildwood's mayor.
But Superior Court Judge Albert Garofolo dismissed the latest indictment Friday.
The ruling comes several months after Garofolo dismissed a similar indictment, saying then that some evidence wasn't presented to the grand jury.
County Prosecutor Robert Taylor, who claims Garofolo has favored the defense, said he would appeal the latest dismissal ruling. Taylor has asked Garofolo to recuse himself but the judge refused, calling Taylor's claim of bias "frivolous."
DeMarzo has claimed the indictment was politically motivated.