Tung said on Friday that plans to revive the bill through a second round of public consultation later this month have been put on hold as a result of widespread opposition to the proposed law.
"In order to give people enough time to understand the law, we decided to withdraw it," Tung said.
"We will legislate the law only when we have had sufficient consultation," he said, adding that there "was no timetable" for the bill's eventual passage.
More than 500,000 people took to the streets on 1 July, to protest the anti-subversion bill known as Article 23.
The protest sparked the biggest political crisis in Hong Kong since the territory came under Chinese rule in 1997, and the re-assessment of its introduction is a rare political climb-down for China.
Activists said the anti-sedition clause in the proposed bill could be used to gag or ban trade unions, human rights groups, and religious organisations, including those already being discriminated against on the mainland, such as the Falun Gong.
The subversion clause, critics said, could also make it an offence to hold a peaceful demonstration. There was also concern that the rights of journalists and non-governmental organisations could be under threat.
The issue boosted fears that Tung’s administration is stalling the territory’s progress toward democracy
Under the proposed law, a person could be found guilty of sedition if judged to have incited others to participate in acts of subversion.
The Hong Kong Government dismissed concerns, saying that citizens' basic rights would be protected.
Still, the issue had increased fears that Tung’s administration is stalling the territory’s progress toward democracy.
Direct elections are to be held after 2007, under the mini-constitution agreed when Britain ceded control of the territory to China.