Okay, first off, there are a lot of misunderstandings of what constitutes the ethical in this thread. It's a common misconception that ethics and morality are one and the same.
Ethics = Having to do with freedom and responsibility in the choices and actions we make, especially when said choices potentially affect others.
Morality = Any value system used to distinguish good from bad. (relative to society, individual)
Now, I have a feeling there is more to the situation than we can know from what information is provided but:
If the law indeed allows the police officer to make the call he did, then it is not illegal. Whether it SHOULD be the law is irrelevant to this discussion.
Since the police officer chose that course of action and followed through with it (and most likely filed a report, etc - all the legal proceedings needed to take responsibility for his own actions), then there is nothing unethical about his actions. If anything, the neighbor might be in the ethically questionable situation if he tried to get out of the punishment, since he knew that the possibility of this happening existed when he did what he did (though he is of course just fine contesting it in court if he wants).
Is it moral? Well, that depends. In the police officer's eyes, probably. In society's eyes: maybe not. If democratic society finds that law unfair, they should contest it to put the law more in line with their moral values. However, regardless, there is no legal nor ethical violation in this case based on the information presented. Any problems with it are purely moral/social, and the police officer cannot be held accountable in that way for legal purposes.