Charging, one of the cornerstone's of London Mayor Ken Livingstone's transport policy, is due to begin in February.
The council claimed the scheme would encourage drivers to use roads bordering the charging zone creating 'rat runs' and increasing localised pollution as well as reducing house prices in the affected areas.
Westminster Council was pressing for a public inquiry into the charging plan and an environmental assessment.
Livingstone said: 'We now look forward to being free to proceed with addressing the problems of congestion in London without the distraction of legal proceedings.'
Councillor Kit Malthouse, deputy leader of Westminster Council, said today: 'We still believe that a major scheme of this nature should not be implemented without more effective scrutiny and question whether Britain's first congestion charge scheme should be introduced in a large and complex city such as London.'