Lawmakers, who saw Dubai Ports World's acquisition of terminal operation rights at major US ports as a potential national security threat, had been pushing to block the deal.
The United States and the UAE have been working on a free trade pact since March 2005 and their fifth round of talks had been scheduled for next week in Abu Dhabi.
"In order to get an agreement that both sides can successfully implement, we need additional time to prepare for the next round of negotiations," said Neena Moorjani, a spokeswoman for the US Trade Representative's office.
Moorjani downplayed the delay, saying holdups are not uncommon in trade talks.
"The US and the UAE are strongly committed to making progress on our FTA negotiations," she said.
An official in Abu Dhabi said the postponement was only "a short delay" unrelated to the ports flare-up.
"I think both sides agreed that they needed a little period of cooling off ..."
David Hamod, president of US-Arab chamber of commerce
"Working groups from both sides will continue their negotiations by video- and phone-conferencing," the official told Reuters in the UAE capital.
David Hamod, president of the National US-Arab Chamber of Commerce, said it would have been difficult for the two sides to hold formal talks while the issue was still so hot.
"I think both sides agreed that they needed a little period of cooling off ... This was not the most conducive environment to talk about free trade in light of the strong protectionist message coming out of the US Congress," Hamod said.
Trade between the United States and UAE amounted to $10 billion in 2005, making it the third-largest US trading partner in the Middle East behind Israel and Saudi Arabia.
Regional free trade zone
The proposed trade deal is part of a broader US effort to craft a regional free-trade zone in the Middle East by 2013. The United States already has free trade pacts with Israel, Jordan, Morocco and Bahrain. Congress is expected to vote this year on an agreement with UAE's neighbour, Oman.
Bill Reinsch, president of the National Foreign Trade Council, said the ports episode would make it harder for Bush to accomplish his goals in the Middle East.
"The message is that we're not distinguishing between countries that help us in the war on terrorism and countries that don't. So the obvious question is why cooperate with the United States, if we're going to treat you as a terrorist anyway?" Reinsch said.
US Treasury Secretary John Snow told CNBC television that the Dubai Ports drama was an isolated case and insisted the United States was still "open for business."
US says Dubai ports drama is an
And while some in the region expressed anger over what they saw as a decision forced on Dubai Ports World, Cathy Novelli, former chief US negotiator for the UAE talks, said she thought the two countries would get past the episode.
"This is one very unfortunate incident and that should not be the determining factor in a very robust overall economic relationship," Novelli said. But "I think it's very understandable that this would upsetting to them."
The United States needs to move quickly to "demonstrate that this is an isolated incident, that we are putting a box around this and we are moving forward with our economic relationship ... in the Middle East," she said.