The New South Wales Department of Community Services decided to drop its pursuit of the couple as it is now too late for the immunization against the disease that causes liver cancer and cirrhosis to be effective.
"It appears that the parents of a newborn at risk of contracting hepatitis B have not presented their baby for medical treatment," the department said in a statement.
"According to medical advice, there is no longer sufficient evidence of the effectiveness of any vaccination," it said, shortly after the expiry of a court order forcing the couple to vaccinate the child.
Police and welfare officers had been hunting for the husband and wife since the department won the court order last Friday. The baby's mother was herself diagnosed with hepatitis B a few years ago,
But the parents fled their Sydney home and went into hiding to avoid their then two-day-old baby from being forcibly vaccinated.
The couple believe aluminium in the vaccine could cause him more damage than contracting hepatitis B.
They told the Sydney Morning Herald earlier that they believe hepatitis B could be more effectively managed than any potential neurological damage they fear the child might contract from the vaccine.
While vaccinations are not compulsory in Australia, New South Wales state health policy mandates that parents of all babies born to hepatitis B-positive mothers must be offered immunoglobulin for the child within 12 hours of birth and four doses of the vaccine over six months.