The right-handed hitter and, occasionally, out of spinner were subject to scrutiny at Galle during a test that Sri Lanka won with six wickets.
He subsequently underwent a bowling assessment in England last month, where his action met the angle of extension of the elbow allowed according to the ICC rules.
“The International Cricket Council confirmed today that the bowling action of New Zealand captain Kane Williamson is legal and that he can continue to play bowling in international cricket,” the ICC said in a statement.
Williamson is not playing in the current Twenty20 series at home against England after a recurring hip injury broke out.
England won the opening game on Friday for seven wickets.