Prejean, 21, has courted controversy since she lost the Miss USA title in April, after speaking out against same-sex marriage on stage at the pageant.
A number of photos were later leaked online purportedly showing her baring her breasts, breaking one of the rules of the competition, which would force Trump to strip her of her title.
But at a press conference in Manhattan on Tuesday, Trump revealed Prejean would remain Miss California, because an initial topless photo was taken when she was a minor at 17, while a second batch published online on Tuesday morning were "photoshopped" by an unscrupulous photographer.
Trump told the press, "She will remain Miss California. She, I believe, will do a fantastic job.
"We're very proud of her. It's been a very tough time for her. She has taken a lot of abuse from people who shouldn't be handing out abuse. But she is tough, she's smart and she's very beautiful, and that's why she's Miss California."
An emotional Prejean thanked her parents and sister for their support, as well as "God, for trusting me with this large task."
She also slammed the photographer who leaked the latest batch of topless shots, which she claims were "taken in between pictures on a windy day" during a shoot for a surfing magazine.
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