The coalition had said it would end pandemic-era work-from-home arrangements for public servants if it won the May 3 election.
But just weeks after it was announced, Mr Dutton buried the policy.
"We got it wrong, we've apologised for it, we support flexible workplace arrangements," he told reporters in Adelaide on Monday.
Voters grew concerned Mr Dutton's ban would encourage the private sector to follow suit, and began turning away from the coalition, polling suggests.
The coalition was in the box seat to win the election in February, according to YouGov data, but within three weeks of the work-from-home announcement, Labor's support had lifted to a level that would almost secure majority government.
"If you want to win working-class votes in working-class seats, you have to be on the side of people at work," YouGov's director of public data Paul Smith told AAP.
"The coalition had a strategy for working-class seats, but their policies were not on the side of working-class people."
The opposition could only revoke work-from-home arrangements for public servants by changing laws in a way that would also remove the rights from all Australian workers, legal advice obtained by the Australian Council of Trade Unions has found.
"Australians cannot trust Peter Dutton with our rights at work," ACTU secretary Sally McManus said.
The policy has also risked putting off female voters as Labor contends that flexible work arrangements particularly benefit women who can take on more work while looking after children at home.
The share of women working full-time has increased from 54 per cent to 58 per cent as work-from-home arrangements have become more common since COVID-19, Australian Bureau of Statistics data shows.Â
This may also be, in part, due to increased public spending in traditionally female-dominated industries like health and child care, but studies have shown that working from home has reduced the gender pay gap.
"(Mr Dutton) wants to rip the heart out of fairness in our industrial relations system," Prime Minister Anthony Albanese told reporters in Melbourne on Monday.
"He's pretending that the policies he announced ... just don't exist and that everyone will just forget about all that."
The coalition has also backed off on plans to fire public servants after it claimed Labor had added 36,000 Canberra-based bureaucrats since coming to power.
Between June 2022 and 2024, only 7400 public servants were added in Canberra, but finance spokeswoman Jane Hume maintained the sector would still be whittled down by tens of thousands of jobs over five years through a hiring freeze and natural attrition - not forced redundancies.
Mr Dutton now claims this was "always the plan" and accused Labor of "contorting that into something else".
But the backflips have raised questions over how the coalition plans to find savings after saying the cuts to the public service would save $7 billion.
As Mr Albanese and Mr Dutton enter the second week of the election campaigns, the opposition leader visited Trouble and Strife cafe in Adelaide while the prime minister visited two Australians who work from home.
The latest Newspoll shows Labor is leading the coalition 52 per cent to 48 per cent on a two-party-preferred basis.
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