They had feared prime suspect Christian Brueckner moved Maddie to his homeland in Germany after abducting her from Praia da Luz 14 years ago.
However, prosecutor Hans Christian Wolters now says police believe Maddie - who would now have been 18-years-old - was killed in Portugal.
Wolters comments come just days after Gerry and Kate McCann - Maddie's mum and dad - said they would never give up hope of finding their daughter.
She disappeared on 3 May 2007, just a few days before she would have been four-years-old.
Wolters says that Brueckner will be convicted of Maddie's abduction and killing by 'concrete evidence', but has so far refused to provide any details as to what that evidence is.
When pressed for his thoughts on where Maddie was killed, Wolters said: "In Portugal. I am optimistic we will solve this case."
Amid rumours that new and important evidence had been found linking Brueckner to the case, he said: "I'm afraid I cannot tell you what it is but it strengthens our work."
Brueckner, 44, is currently in prison serving a seven-year sentence for the rape of a 72-year-old woman in Portugal's Algarve region in 2005.
Last year, the German police investigators dug up an allotment near to where the drifter used to stay in Hanover.
It has been speculated that they were looking for evidence such as hard drives or material that could link him to the case.
However, Mr Wolters added: "Since Christian B did not have the allotment at the time of Maddie's disappearance, he could not have buried a body there."
Brueckner, a convicted child sex offender, was identified as a person of interest by the German authorities last July, and they hope to gather enough evidence to charge him with McCann's killing at some point this year.
However, the British police are still treating Madeleine's disappearance as a missing persons case, rather than a murder case.
Brueckner - who was initially identified to the press as 'Christian B' - remains in prison while the case is built, but his lawyer Friedrich Fulscher has insisted the German national has nothing to do with Maddie's disappearance and alleged death.
Gerry and Kate McCann paid a moving tribute to their missing daughter last week, on what would have been her 18th birthday.
They said: "Happy 18th birthday Madeleine. We love you and we're waiting for you and we're never going to give up."
Featured Image Credit: PA