The bill introduced last week by Agriculture Minister Dugald Saunders threatened to revive the fierce debate over koala habitat and provide a gift to the Labor opposition and independent candidates in the lead-up to the March election.
The legislation would have cut red tape for people wanting to clear native forests on their private properties by removing local councils from the approval process and extending private logging approvals from 15 to 30 years.
Mr Saunders issued a brief statement on Monday afternoon, saying the government would not proceed with the bill.
"While this bill upholds all existing protections for the environment, we will continue to have further conversations with local councils to progress legislation that unites communities and industry," he said.
The backdown was welcomed by Labor's environment spokeswoman Penny Sharpe, who said the bill was divisive and should never have been put forward.
"We need to remember koalas are on track to be extinct in this state by 2050. We've got 28 years to turn it around," Ms Sharpe said on Tuesday.
"This bill would have made it easier to cut down the trees that they live in.
"It's very important that we do everything that we can ... to ensure that we will have (koalas) in the wild into the future."
The white-hot issue of land clearing affecting koala habitat almost blew up the NSW coalition in 2020 when then deputy premier John Barilaro threatened to move the Nationals to the crossbench.
The new legislation which was due to be debated this week quickly generated adverse reactions inside and outside the government.
National MP Geoff Provest, the member for Tweed on the north coast in prime koala territory, was among the first to react, saying he would not support it.
Independent upper house MP Justin Field said the bill would have reduced regulation on about 689,300 hectares of forestry, concentrated in northern NSW, and undermined claims by moderate Liberals the government was taking the protection of koalas seriously.
"It's crazy for Premier (Dominic) Perrottet and the so-called moderate Liberals to capitulate again to the Nationals on koala protections so close to an election," he said.
"Putting aside that it is terrible policy and further undermines koala protections, it's crazy politics," he said.
The issue would have boosted the chances of candidates in blue-ribbon Liberal seats hoping to repeat the success of "teal independents" at the federal election.
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