Graham Pearson, 54, was arrested at his Cherry Crescent home in Balladen, Rawtenstall, for having a stash of violent rape photographs of very young children.
He was bailed to return to Rawtenstall police station while officers considered whether charges should be brought against him.
But Mr Pearson, who is a Labour party council leader, was formally cautioned when he attended one of his council appointments.
A Lancashire Police spokesman said: “Lancashire Constabulary have given an adult caution to a 54-year-old man from the Rossendale area for possession of indecent photographs of children.
“We arrested Mr Pearson at his home address.”
When asked about the caution, Mr Pearson said: “I have no comment to make.”
Mr Pearson went missing from his home, and police issued an appeal for his return. His silver Chevrolet car was also said to be missing. But he was later discovered hiding in the Cumbria area.
He was a Hareholme ward councillor and also served as Mayor of Rossendale.
For four years from 1985 he served as a Lancashire county councillor for Rossendale East ward, but stood down prior to the 1989 elections.
He is also a governor at Staghills Nursery and Newchurch CE Primary and, while mayor, worked as a teacher at a primary school in Oldham.
Under Coun Pearson, Labour regained control of Rossendale council in May 2002 after two years of Tory rule.
A spokeswoman for the Crown Prosecution Service (CPS) said two types of cautions can be handed out, either with or without conditions.
She said: “In accordance with Home Office guidelines the police have the power to caution people without referring the matter to the CPS.
“They can also refer the matter to us and we have to consider the circumstances of each individual case to determine what is appropriate.”
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