FIFA said in a statement on Friday that its emergency committee had considered the decision and that "the SFV (Swiss FA) will consequently not be suspended in relation to the FIFA Executive Committee's decision of December 16."
"However, FIFA has requested the SFV to keep the international football governing body informed on any future developments with regards to this matter," it added.
Football's governing body, whose headquarters are in Zurich, had threatened to kick out Switzerland at its executive committee meeting in Japan last month.
It had told the SFV to award 3-0 walkover wins to Sion's opponents but the SFV argued this would distort the league by giving points to other clubs.
An international ban would have prevented Switzerland from playing international matches and would also have led to FC Basel, due to play Bayern Munich in the last 16, being expelled from the Champions League
FIFA had been widely criticised for its ultimatum, with the world players' union FIFPro saying it was wrong that FC Basel players should be punished for the actions of the Sion management.
The Swiss Players' Union had accused FIFA of playing 'power games'.
Last week, the SFV deducted three points for each of the 12 domestic matches in which Sion had fielded any of six players signed in the summer when the club was subjected to a FIFA transfer ban.
Sion signed Stefan Glarner, Jose Goncalves, Mario Mutsch, Pascal Feindouno, Billy Ketkeophomphone and Gabri despite being banned from doing so after FIFA found them guilty of poaching a player from an Egyptian club in 2008.
The six players took their case to a civil court in the canton of Valais, which ruled they could play, and Sion subsequently fielded them in the Swiss league.
Some of the players also appeared in a Europa League qualifying tie against Celtic. Sion won the tie but were expelled from the competition by UEFA who ruled the players were ineligible.
Sion then obtained an injunction at another court in the canton of Vaud, where UEFA's headquarters are based, ordering European football's governing body to reinstate them to the competition.
However, this injunction referred the matter to the Court of Arbitration for Sport (CAS) which ruled in favour of UEFA.
In the meantime, the injunction obtained by the players in Valais canton was overturned by a higher court.
The case has already caused acute embarrassment to Switzerland with other clubs admitting it has damaged the country's image in the sport.
At one point, UEFA president Michel Platini appeared before prosecutors in Vaud to explain why his organisation had not complied with the injunction ordering Sion's reinstatement to the Europa League.
Sion are now bottom of the league with minus five points from 18 games.
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