Emanuel blasted the decision after Smollett appeared in a Cook County court for an "emergency hearing" where prosecutors dropped all 16 charges of disorderly conduct.
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Smollett was accused of lying to police about a racist and homophobic attack in the Streeterville neighborhood.
Cook County prosecutors said Smollett is not exonerated.
However, Emanuel and Chicago police Supt. Eddie Johnson expressed anger and frustration.
"This is a whitewash of justice. A grand jury could not have been clearer," Emanuel said, referring to the grand jury who indicted Smollett, during a press conference following a police graduation at Navy Pier.
He continued: "At the end of the day, it's Mr. Smollett who committed this hoax, period. If he wanted to clear his name, the way to do that was in a court of law so everyone could see the evidence.... I stand by the facts of what we produced. If they want to dispute those facts, then the place to do that is in court, not secrecy. I want to say one other thing. Mr. Smollett is still saying that he is innocent, still running down the Chicago police department. How dare him? How dare him?"
WATCH: Mayor Rahm Emanuel outraged by prosecutors' decision to drop charges against Jussie Smollett
Johnson said he believes Smollett still owes Chicago an apology.
"Do I think justice was served? No. What do I think justice is? I think this city is still owed an apology," he said.
WATCH: Johnson reacts to Jussie Smollett charges being dropped
Emanuel pointed out that enormous police resources were used for the investigation. On top of the financial cost, he noted that false allegations also make the next victim less likely to be believed. He said the cost "comes to all the individuals, gay men and women who will come forward and say they were the victim of a hate crime and having them doubt it, people of faith who are a victim of a hate crime, people of all walks of life and background, race, ethnicity, sexual orientation, now this casts a shadow over whether they're telling the truth."
He added that Chicago's reputation has been "dragged through the mud."
Emanuel compared the situation to the recent college admissions scandal in which wealthy parents paid to get their children into elite colleges.
"Now you have a person, because of their position and background who is getting treated in a way that nobody else would ever ... get close to this type of treatment," Emanuel said.
WATCH: Full comments by Mayor Emanuel, Supt. Johnson on charges being dropped against Jussie Smollett
Prosecutors said charges were dropped after reviewing the circumstances of the case as well as Smollett's community service and the forfeiture of his $10,000 bond.
Cook County First Assistant State's Attorney Joe Magats, who took over after his boss Kim Foxx recused herself from the case, said the office focuses on violent offenders, noting that Smollett is not a "driver of violence." Thus, Magats said they looked for an alternative way to resolve the case.
As part of the conditions of charges being dropped, Smollett volunteered 16 hours in the last week at the Rainbow Push Coalition in Chicago. The charges have also been expunged from his record.
Smollett's attorney, Patricia Brown Holmes, countered Emanuel's "whitewashing of justice" comments.
"I can tell you that this was not a whitewashing. This was justice," she said.
WATCH: Jussie Smollett speaks after charges dropped
Smollett appeared in court Tuesday and thanked all of his supporters.
"Not for a moment was it in vain," Smollett said. "I have been truthful and consistent on every single level since day one. I would not be my mother's son if I was capable of one drop of what I was accused of."
Smollett was accused of paying two brothers to stage an attack on him. Tuesday, he said he wants to get back to work and move on with his life.
"But make no mistakes, I will always continue to fight for the justice, equality and betterment of marginalized people everywhere," Smollett said.
Chicago Mayor Rahm Emanuel is scheduled to appear Wednesday morning on "Good Morning America."