The vigilantes were led by convert Sven Lau who is simultaneously on trial for backing “a terrorist group” fighting in Syria.
Mr. Lau and six accomplices took to the streets of the western city of Wuppertal in 2014, telling people not to drink, listen to music, attend nightclubs, or gamble.
However, prosecutors have said they are struggling to build a case against them.
The case centres on the claim the men breached a ban on political uniforms after they donned orange vests bearing the words “sharia police.”
The law was originally brought in to criminalise organised Neo-Nazi and Brown Shirt patrols in Germany.
According to the judges, however, the Islamic patrol was not illegal because the uniforms were not “suggestively militant” and did not have an “intimidating effect,” Die Welt reports.
The same court threw out the same case last year, but was overruled on appeal by a higher court, which agreed with prosecutors that the ban on uniforms could be applied in this case.
Monday’s verdict is not yet final and could still be appealed.
Germany has seen a spate of organised sharia patrols, with witnesses claiming an Islamic State-linked sharia police unit had formed in the northern city of Hamburg in August of this year.
Earlier in the year, a number of bars in Denmark reported repeated harassment by sharia patrols.
They claimed certain areas of the capital, Copenhagen, had become “sharia zones” with property vandalised and abuse shouted at government ministers.
In London, “Muslim patrols” or “modesty patrols,” linked to Anjem Choudary’s now banned terrorist group Al-Muhajiroun, walked the streets from 2013 to 2014.
They targeted people drinking alcohol, couples holding hands, women they considered to be dressed immodestly, and harassed men they perceived as being gay.
Three patrol members were convicted and sentenced in December 2013, pleading guilty to charges including assault and using threatening words and behaviour.