Plans to axe up to 200 staff at Dorset County Hospital in Dorchester in order to make savings have been shelved.
The posts were being reviewed after the hospital trust said it faced a predicted deficit of £7.4m by this financial year.
Staff reductions will instead be made through normal staff turnover over a period of time.
The hospital has also been reviewing hospital services, with campaigners fearing cuts in frontline care.
In December, it was announced that 28 managerial posts would be axed by next March, in what was thought to be the first wave of hundreds of cuts.
But interim chief executive of the hospital trust, Derek Smith, said the hospital's current plans "no longer depend on making any major staff reductions through redundancies".
"As part of our Sustainability Plan, we are continuing to implement a range of projects to improve our performance and are getting strong support from staff for these projects."
Staff representatives said the trust announced its u-turn following discussions with NHS Dorset and the South West Strategic Health Authority.
Jenny Price, chair of Staff Side - a group representing the staff unions - said: "There is now clarity about the situation from the trust.
"However, we are very pleased to now be assured by the trust management that they wish to work more closely with us to agree a cost savings plan which is realistic, sustainable and which has the minimum impact on the quality of patient services and staff jobs".
'Losses of £11m'
Campaigners fearing cuts to the maternity and special care baby unit (SCBU) were told by the trust last year that both services would remain.
A Facebook group with more than 7,000 members had been set up in protest at their potential closure, while a series of demonstrations have been held in Dorchester.
The hospital has been losing more than £500,000 a month, which the trust has said could reach £11m by March 2011, if no action is taken.
In October, Robin SeQueira CBE, who served as chairman of the hospital for 12 years, resigned.