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.

The 21-year-old made his debut for the League Two Essex side in 2013 and scored 14 goals in 76 appearances.
He spent part of this season on loan at National League leaders Lincoln City, where his only goal in eight outings came in a 1-0 win at Tranmere Rovers
Woking are in the relegation zone with one win in their last five games and play Eastleigh on Saturday.
Find all the latest football transfers on our dedicated page or visit our Premier League tracker here.

The 27-year-old Nigerian joined the Hornets from Udinese in July 2014 and helped them win promotion to the Premier League in 2014-15.
He scored 17 goals in 42 games last season as the Vicarage Road side finished 13th in the top flight and reached the FA Cup semi-final.
Walter Mazzarri's men start the new campaign with a trip to Southampton on Saturday.

Confederate forces acquired hundreds of Clyde-built boats because they were fast, making them ideal for evading Union ships blockading Southern ports.
Archaeologists believe the shipwreck off Oak Island, North Carolina, is a blockade runner called Agnes E Fry.
It was launched on the Clyde under a different name, Fox.
A sonar scan was made of the wreck earlier this year and the shape, size and location suggests that it is of the Agnes E Fry.
Deputy state archaeologist, Billy Ray Morris, told the BBC News Scotland website that a further investigation was imminent.
He said: "We will be conducting 3D sonar imaging operations on Fry next week and will have a detailed computer model of the site shortly thereafter."
The North Carolina archaeologist added: "Agnes E Fry was built by Caird & Co in Greenock. She was launched 26 March 1864.
"She was an iron-hulled paddle steamer with two oscillating engines. She was lost 27 December 1864 commanded by Joseph Fry.
"Originally named Fox, Fry renamed her after his wife when he took command."
Coincidently, work is also under way to try and give a wrecked blockade runner in Scottish waters better protection.
The Iona I operated on a Glasgow to the Highlands passenger route before it was purchased by Confederate agents for use in delivering supplies to blockaded American ports.
But it never reached the war as it sank in the Clyde near Gourock following a collision with another ship in 1862.
Earlier this year, the Scottish government proposed designating the site as a Historic Marine Protected Area (HMPA) to preserve it as a historic asset of national importance.
Historic Environment Scotland has begun a public consultation on the designation.
The wreck of Iona I has been described as being in a good condition. Glasgow Museums has a scale model of the paddle streamer in its collections.
A German court has ruled that seven Muslim men who formed a Sharia street patrol did not break laws against political uniforms.
[NEXT_CONCEPT]
National League Woking have signed striker Macauley Bonne on a one-month loan from Colchester United.
[NEXT_CONCEPT]
Watford striker Odion Ighalo has signed a new five-year deal.
[NEXT_CONCEPT]
Archaeologists are preparing to make a detailed examination of a wreck believed to be that of a Scottish ship used in the American Civil War.