The move by Pirro, the top federal prosecutor in Washington DC, for now ends an inquiry that had been rebuked by a federal judge and prompted a key Republican senator to block Trump's nominees to the US central bank.
Pirro said she had instead asked the Fed's internal watchdog, the Office of Inspector General, to examine cost overruns in renovations of the central bank's Washington DC headquarters.
The inspector general has already been examining the project after Powell requested a review last year.
"The IG has the authority to hold the Federal Reserve accountable to American taxpayers," Pirro said in a social media post.
"I expect a comprehensive report in short order and am confident the outcome will assist in resolving, once and for all, the questions that led this office to issue subpoenas."
The probe had been examining the renovation and Powell's statements to Congress last year about the project.
A federal judge last month blocked subpoenas to the Fed's Board of Governors, finding they were issued for the improper purpose of pressuring Powell to cave to Trump's demands to rapidly lower interest rates or resign.
Chief US District Judge James Boasberg concluded prosecutors had shown "essentially zero evidence" Powell committed a crime.
As recently as this week, Pirro had vowed to appeal the ruling and continue the investigation.
Republican Senator Thom Tillis of North Carolina, a member of the Senate Banking Committee, has vowed not to support Warsh until the DOJ ends what he has called a baseless investigation into Powell.
Tillis' blockade had effectively stalled Warsh's confirmation.
A spokesperson for Tillis had no immediate comment on Friday.
A spokesperson for the Fed declined to comment.
A White House spokesperson said the inspector general was best positioned "to get to the bottom of the matter" and said it was confident the Senate would confirm Warsh.
The decision to end the probe may clear the way for Warsh's Senate confirmation as Fed chair, potentially by May 15 when Powell's leadership term ends.
It is less clear if the move meets Powell's own bar for stepping down as governor.
"I have no intention of leaving the Board until the investigation is well and truly over, with transparency and finality," Powell said last month.
Powell revealed the existence of the investigation in January, calling it a pretext for Trump to gain influence over monetary policy in a blunt video statement.
Powell pledged last month to keep his seat on the Fed's Board of Governors after his term as chair expires on May 15 until the investigation is complete.
Trump has for months hectored Powell, urging him to lower interest rates, and publicly supported an investigation into the renovation project.
Trump has called Powell a "numbskull," a "major loser" and "very incompetent," comments Boasberg cited in quashing subpoenas.
