Victorian Liberal Moira Deeming had accused former party leader Matthew Guy of assaulting her during a function in May.
CCTV footage of the incident, shared with AAP, appears to show Mr Guy putting his hand on Mrs Deeming's upper back as they lean in to talk to one another.
Victorian Liberal Leader Jess Wilson confirmed the matter was being investigated.
"Like every other Victorian, the parties involved deserve due process, the presumption of innocence and their privacy respected while this is investigated," she said in a statement on Thursday before police issued their statement.
Mr Guy and Mrs Deeming have both been contacted for comment.
The Age has reported that Mr Guy "vehemently denied to colleagues that anything untoward took place".
"Following a thorough investigation, it has been determined there was no offence detected," Victorian Police said in a statement released late on Thursday.
The statement said the incident occurred on May 23 and was reported to police on June 16.
"The woman did not require medical attention," police said, adding that "investigators have engaged with the woman who made the report".
Ms Wilson said her focus remains on issues important to voters and earning their trust ahead of the November state election.
In the CCTV footage, Mr Guy is seen seated at a table and talking with Mrs Deeming and another man.
The former leader appears to place his hand on Mrs Deeming's upper back or shoulder area and pulling her in to say something before doing a similar gesture with the man.
State Attorney-General Sonya Kilkenny has posed questions to Ms Wilson about what and when she knew about the allegation, what actions she has taken, and whether it is appropriate for MPs to remain in the partyroom when they are the subject of a police complaint.
"An alleged assault by one Liberal member of parliament against another Liberal colleague - they're serious questions that the Liberal Leader Jess Wilson needs to come and answer," Premier Jacinta Allan told reporters earlier on Thursday.
The allegation comes five months out from the state election, where the party is attempting to turf out a three-term Labor government but also faces a surging One Nation.
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