EPA reached the conclusion in a draft regulatory document not yet made public but reviewed Monday by The Associated Press.
The ingredient, perchlorate, has been found in at least 395 sites in 35 states at levels some scientists say could interfere with thyroid function and pose developmental health risks, particularly for babies and fetuses.
The EPA document says that mandating a cleanup level for perchlorate would not result in a "meaningful opportunity for health risk reduction for persons served by public-water systems."
The conclusion, which caps years of dispute over the issue, was denounced by Democrats and environmentalists who accused EPA of caving in to pressure from the Pentagon.
"This is a widespread contamination problem, and to see the Bush EPA just walk away is shocking," said Sen. Barbara Boxer, a Democrat who chairs the Senate's environment committee.
Lenny Siegel, director of the Center for Public Environmental Oversight in Mountain View, Calif., added: "This is an unconscionable decision not based upon science or law but on concern that a more stringent standard could cost the government significantly."
The Defense Department used perchlorate for decades in testing missiles and rockets, and most perchlorate contamination is the result of defense and aerospace activities, congressional investigators said last year.
The Pentagon could face liability if EPA set a national drinking water standard that forced water agencies around the country to undertake costly cleanup efforts. Defense officials have spent years questioning EPA's conclusions about the risks posed by perchlorate.
The Pentagon objected strongly Monday to the suggestion that it sought to influence EPA's decision.
"We have not intervened in any way in EPA's determination not to regulate perchlorate. If you read their determination, that's based on criteria in the Safe Drinking Water Act," Paul Yaroschak, Pentagon deputy director for emerging contaminants, said in an interview.
Yaroschak said the Pentagon has been working for years to clean up perchlorate at its facilities. He also contended that the Pentagon was not the source of as much perchlorate contamination as once believed, noting that it also comes from fireworks, road flares and fertilizer.
Benjamin Grumbles, EPA's assistant administrator for water, said in a statement that "science, not the politics of fear in an election year, will drive our final decision."
"We know perchlorate in drinking water presents some degree of risk, and we're committed to working with states and scientists to ensure public health is protected and meaningful opportunities for reducing risk are fully considered," Grumbles said.
Grumbles said the EPA expected to seek comment and take final action before the end of the year. The draft document was first reported Monday by the Washington Post.
Perchlorate is particularly widespread in California and the Southwest, where it has been found in groundwater and in the Colorado River, a drinking-water source for 20 million people. Its also has been found in lettuce and other foods.
In absence of federal action, states have acted on their own. In 2007, California adopted a drinking water standard of 6 parts per billion. Massachusetts has set a drinking water standard of 2 parts per billion.