The mayor of London has decided Cressida Dick should not face a formal investigation into an official finding that she obstructed an inquiry into police corruption.

In June, Dick, the Metropolitan police commissioner, was heavily criticised by the government-appointed panel investigating the 1987 murder of Daniel Morgan, a private detective whose killers were shielded by police corruption.

The panel made a series of bombshell findings, including that the Met was institutionally corrupt.

For the last four months the London mayor’s office for policing and crime (Mopac), which has oversight of the Met, has been considering whether to refer Dick for a formal investigation, which would be carried out by the Independent Office for Police Conduct (IOPC).

On Thursday Mopac decided not to refer the commissioner for the investigation. The decision came weeks after Dick’s contract as commissioner was controversially extended by two years by the home secretary, in consultation with Sadiq Khan, London’s mayor.

The IOPC is now considering ordering that the case still be sent to it and has started gathering evidence as it considers whether to launch an investigation.

The report into the unsolved murder in 1987 of Morgan, who was found dead in a south London pub car park with an axe in his head, accused the Met of placing the protection of its reputation above finding the truth. It personally criticised Dick for obstructing access to documents the panel thought vital and blamed the force for it taking eight years to reach its conclusions.

Any potential disciplinary complaint against the commissioner has to first be considered by Mopac. Complaints against other ranks can be referred by the Met itself.

A spokesperson for Mopac said: “Following the publication of the Daniel Morgan independent panel report, Mopac, as the appropriate authority, proactively assessed whether there was an indication that the commissioner may have committed a criminal offence or behaved in a matter which would justify disciplinary proceedings.

“Mopac has concluded that the actions of the commissioner do not meet the threshold for referral to the Independent Office for Police Conduct and has shared their assessment with the IOPC.”

Dick has denied hampering the panel’s work by blocking or delaying access to sensitive documents. “I didn’t obstruct their work. I set out with my team, who were well resourced, to ensure that we gave the panel maximum cooperation, and that we did full disclosure, as quickly as we could,” she said in June.

Dick has also dismissed the independent report’s main finding: “I don’t believe we are institutionally corrupt. No, I don’t accept that.”

Following Mopac’s decision, the IOPC revealed it was receiving evidence from the Morgan inquiry panel that led it to criticise the Met commissioner.

The IOPC said: “We are undertaking our own assessment to determine whether there are any conduct matters identified within the report for any named police officer, including the MPS commissioner and former commissioners, that may require a referral to us.

“We have met with the chair and other members of the panel to gain a greater understanding of the criticisms made. We have received further information from the panel and we have requested and received additional material from the MPS to assist our assessment, which is ongoing.”

The former Met police chief Brian Paddick said he feared Mopac’s decision was a sign the findings of the panel were being buried. Morgan’s family waged a 30-year campaign for answers, alleging the establishment would cover up the truth.

Paddick, the home affairs spokesperson for the Liberal Democrats in the Lords, said: “Implicit in the mayor’s decision is that he condones the commissioner’s behaviour that was criticised by the inquiry. I have been very concerned that the conclusions of the panel were going to be buried – and this appears to confirm my fears.”

In law the London mayor has responsibility for holding the Met to account. Khan, like his predecessor, Boris Johnson, devolved that role to a deputy mayor.