The group sparked outrage in the western city of Wuppertal in 2014, when they approached people in orange vests bearing the words "Sharia Police".
They demanded that locals stop gambling, listening to music, and drinking alcohol.
The group's alleged organiser, Sven Lau, is a well-known Islamist preacher.
He is facing separate charges of supporting a terrorist group fighting in Syria.
A film of the "patrol" appeared on YouTube, prompting condemnation from the Central Council of Muslims in Germany, who said their behaviour was "harmful to Muslims".
Wuppertal's district court ruled that the seven vigilantes could only have broken the law - which was originally aimed at street movements such as the early Nazi party - if their uniforms were "suggestively militant or intimidating", a court spokesman said.
In this case, it found that the vests were not threatening, noting that one witness mistook the gang for a stag do.
The same court threw out the case last year, but was overruled on appeal by a higher court which felt the ban on uniforms could be applied in this case.
Monday's verdict is not yet final and may still be appealed.
So-called "Sharia patrols" by ultra-conservative Muslim men have been seen in other European cities including London, Copenhagen and Hamburg.
A German court has ruled that seven Muslim men who formed a Sharia street patrol did not break laws against political uniforms.