The decision caused by the political and legal maelstrom into the investigation, according to the paper.
Caruana Galizia had been investigating alleged corruption within the government. Her family and protesters have accused Muscat of trying to shield members of his inner circle from the ongoing investigation into her death.
"Every single day of these past two years I have shouldered responsibilities and taken decisions. I made decisions in the best interest for the conclusion of the case and I am convinced that some decisions were good while others could have been better," Muscat said in his statement.
"The sensations of genuine sadness and anger for this murder are justified," he said. "In the same manner, violence, and disorder, within the pretext of a protest, are not justified in a democracy."
Caruana Galizia was killed in the car bomb just down the road from her home as she drove to the bank. Her family says she was "assassinated" because of her work uncovering alleged corruption in the Maltese government.
The journalist had suffered intimidation over the years -- her dog's throat was cut, and in 2006 her house was set on fire as the family slept, tires piled against the back door to prevent them escaping.
Shortly before her death, in what was to be the final entry on her blog Running Commentary, she wrote: "There are crooks everywhere you look now. The situation is desperate."
CNN's Susanna Capelouto reported Atlanta and Simon Cullen reported from London. Tara John contributed to this report.