They said it distorted fair market competition and could be used to tighten Beijing's grip on political dissent.
No new launch date
And critics are likely to see the postponement - with no fresh deadline for a launch - as a climb-down after the domestic and international controversy that erupted after the plan was revealed in May.
Andrew Lih, a journalism professor at the University of Southern California and a specialist in new media technology, told Al Jazeera that the Chinese government "won't outright say that this was a failure or a problem but this was unusual in that there was a lot of pushback on the internet ... and the government responded quite appropriately".
Wang Junxiu, an internet entrepreneur in Beijing who objected to Green Dam, said the government "never expected the backlash would be so vehement".
"This will just peter out now and the government will hope it will be soon forgotten, I'd say."
China's industry ministry said it made the decision partly because some PC makers were having difficulty meeting the deadline, but left open the possibility of the plan returning in some form.
"Some businesses pointed out the heavy amount of work, time pressures and lack of preparation," an unnamed official said in a statement on its website.
The official, however, rejected claims that the plan threatened free speech, violated international trade rules or was chosen without proper tender processes, and said the ministry "will further solicit opinions from all sides, improve the plan, upgrade methods and carry out related tasks".
US officials had protested against the plan, calling it "draconian" and a barrier to trade, while the European Union called for it to be scrapped and industry groups warned that the software might create computer security problems.
|With around 300 million web users, China has the world's biggest wired population [Reuters]
But the loudest opposition came from Chinese internet users, activists, bloggers and lawyers who circulated online petitions and threatened protests, lawsuits and other actions against the plan.
Li Fangping, a Beijing lawyer who had demanded a public hearing on the plan, said Tuesday's decision was a "victory for China's civil society".
"Many citizens worked together and voiced their opposition to the forced installation of this filtering software and forced the government to at least think more deeply about it," Li said.
"We hope now that they will go ahead and completely drop this order."
Lih, the journalism professor, noted, however, that "China is not unique in their goal of trying to censor the internet", pointing out that Australia and Britain have been criticised for trying to use similar filtering software.
And Wen Yunchao, a Chinese blogger who has been among the most vocal critics of the Green Dam plan, cautioned that the authorities were "using the word 'delay' instead of saying they stopped the plan".
"I think that it's possible that at some point in the future the government could still enforce their policy and install software on personal computers that filters the information people are able to look at. So, I am calling this an intermediary victory."