TMZ broke the story ... prosecutors in Washington State dropped the case this week, saying the accuser wasn't cooperating and therefore they couldn't proceed. Nelly's attorney Scott Rosenblum isn't surprised and tells us, "Nelly has suffered very real damage to his reputation. He has incurred economic loss and painfully has watched his family suffer. As a result Nelly is planning to proceed with litigation as the first step in restoring his reputation."

Rosenblum says Nelly recognizes real victims of sexual assault need to be heard, and adds that's why they're going after his accuser. "This type of reckless false allegation cannot be tolerated as it is an affront to the real survivors of sexual assault."

The accuser's attorney said her client only refused to testify because of the public pressure she faced after accusing a huge celeb was too much.