The 51-year-old Sunday World reporter was killed by loyalists in Lurgan, Co Armagh in September 2001 as he returned from his local pub.
Gunmen pulled alongside him in a car and shot him dead.
A witness, who was also a suspect in the investigation, gave an account to police which could not be independently verified, the Public Prosecution Service said on Friday.
Neil Hyde, who turned supergrass, was interviewed by police at length about the full extent of his knowledge of the murder and his own involvement in the commission of offences on this and other occasions.
He was sentenced to three years in jail for a range of offences in connection with the murder, including conspiring to carry a firearm with intent to wound.
Hyde - a former LVF member - pleaded guilty to 48 charges at Belfast Crown Court last year.
At the time, the judge said he would have been sentenced to 18 years in jail if he had not agreed to identify those involved in the murder.
The PPS are now considering whether there are grounds for Hyde's sentence to be reviewed.
"I know this decision will be disappointing to Mr O'Hagan's widow, family, friends and colleagues but the evidence that can be given by an assisting offender must be carefully evaluated and the test for prosecution applied on a case by case basis," explained Director of Public Prosecutions Barra McGrory QC.
"Every case is different and the question whether the test for prosecution is met can only be determined on the merits of each individual case", he added.
Last year, the biggest supergrass trial in decades failed to secure any convictions in connection with the murder of UDA leader Tommy English.
Nine men - including former north Belfast UVF commander Mark Haddock - walked free from court, cleared of involvement in the loyalist feud murder and a litany of other paramilitary-related charges.
It's been a long hard, torturous process and now the PPS has just told us that they're not going to bring these people to justice.
The DPP said: "The approach in this case has been assisted by the detailed consideration given by Mr Justice Gillen in his judgment in the case of R v Haddock and others to the dangers of convicting on the uncorroborated evidence of an accomplice.
"The prosecution of any of the accused in this case would depend on the evidence of Neil Hyde.
"Having regard to all the circumstances it has been concluded that, in the absence of any corroboration, the available evidence is insufficient to provide a reasonable prospect of obtaining a conviction against any individual."
Mr O'Hagan's brother Fintan said he was devastated that no one would be brought before the courts.
"They have a witness who wants to go into court, who wants to tell the judge who killed my brother," he said.
"These people aren't going to let it happen. We have to ask ourselves why?
"If he wasn't a good witness, why did they give him 15 years off his sentence?"
Sunday World editor Jim McDowell said the journalist's family and the paper's staff were hurt by the decision.
He said he was "angry, but not deterred".
"As far as I'm concerned and my staff are concerned, we will continue to fight for justice for Martin O'Hagan."
Police say they accept Friday's decision and insist the investigation into the murder remains open.