Plans allowing courts to order the closure of mosques and other places of worship as part of anti-terror laws are to be dropped, the Home Office says.
The plan was opposed by civil liberty groups and Muslim groups
Ministers issued a consultation document in October on the proposals - first suggested by Prime Minister Tony Blair in the summer.
The Home Office decided against the measures after police said there were better ways of controlling extremism.
Muslim groups and civil liberty groups were also opposed to the idea.
The proposal was originally part of Mr Blair's 12 point plan to fight terrorism in the wake of the 7 July London bombings.
Under the proposal, police would have been able to seek a court order for the temporary closure of a place of worship if extremist behaviour or terrorist activity was believed to be taking place.
A consultation paper said the new powers would only be used as "a last resort" if police could not solve problems at a place of worship with members of the community.
Home Secretary Charles Clarke said the government would keep the matter under close review.
"We think that, on the advice that we've got, there's an element of sledgehammer to crack a nut in relation to this particular problem," he told BBC News.
"The mainstream Muslim community has been very, very clear in the joint work that they've done with us that the mosque is not the place for any extremist activity and have said they'll work in that way.
"We've accepted that, the police accept that, but of course we'll keep the situation under review".
An imam in the Leicester area, Ibrahim Mogra, told BBC Radio Five Live he was very pleased by the decision:
"I would say we're over the moon might be an understatement at this moment in time.
"We were extremely worried because we don't talk about shutting down the places of worship, we should be talking about dealing with those who preach hatred for others," he said.
"What we are saying is mosques are places where we are taught the peaceful nature of Islam."
Following the consultation period, which ended five weeks ago, the Association of Chief Police Officers warned that the proposed plan could be seen as an attack on religion.
It was also criticised by civil rights group Liberty which warned the proposal was the "worst type of response to terrorism".
And the Muslim Council of Britain (MCB) said that adequate powers already existed and that the measures would have "criminalised an entire community".
BBC correspondent Danny Shaw said it appeared that ministers had listened to concerns.
But with such strong opposition, it was unlikely the government would have been able to secure Parliament's approval, our correspondent added.