The ANC decided the bill would not be presented in the National Assembly as planned on Tuesday and further consultations would take place.
This will afford parliament an opportunity to report back to the people during the forthcoming constituency period, said ANC chief parliamentary whip Mathole Motshekga at a media briefing. ANC members of parliament were happy with the bill in its current form, he said.
The question of scrapping the bill does not arise because we are satisfied with the work that the committee has done.
Investors worry that the draft Protection of Information Bill will allow government entities to hide market-sensitive data and punish journalists who would face up to 25 years in jail for illegally publishing classified information.
An ANC-dominated committee managing the bill watered down the legislation, decreasing penalties for revealing secrets and the number of government agencies who can classify information, but did not alter parts banning the release of secrets in the public interest.
The ANC, which holds a solid majority in parliament, had planned to hold a vote on the bill as early as this week but was asked by allies and media groups to reconsider the legislation.
The decision is likely to embarrass President Jacob Zuma, whose government strongly backed the bill but came under fire from critics who said its draconian penalties harked back to apartheid-era legislation.
Investors, media groups and the labour federation COSATU, a governing partner with the ANC, have charged the government with fostering a culture of cronyism, and many see the bill as a way to help cover up corruption.
Our position on the public interest defence has not changed, Luwellyn Landers, chairman of parliament's Justice Committee, said at the same briefing.
ANC MPs expect the bill to be finalised by the end of the year before being sent to Zuma for assent into law. Opposition groups said they would challenge the bill's constitutionality if it became law without the key public interest provision.
The fact is that this bill is a clear and present danger to the freedom of the press and other media in South Africa, said David Maynier, an MP with the opposition Democratic Alliance.