However, he said his party would not take any decision that would strengthen the "dictatorship", referring to Pervez Musharraf, Pakistan's president.
Government 'support'
Sharif's party, the PML-N, pledged to continue supporting the six-week old coalition from outside the government, the prime minister's office said.
In depth
In a statement, it said: "Senior Federal Minister for Food, Chaudhry Nisar Ali Khan called on Prime Minister Syed Yousuf Raza Gilani this morning and assured him that PML-N members would continue to support the coalition government, regardless of the decision taken by the party leadership today."
Sharif had earlier announced the judges would be restored on Monday after talks with his ally Asif Ali Zardari, who co-chairs the PPP, in Dubai.
The reinstatement of the judges would likely have caused trouble for Musharraf, who considers them hostile.
Musharraf dismissed around 60 judges after imposing six-weeks of emergency rule in November, in order to pre-empt a ruling against his October re-election.
If reinstated, its possible the judges would revive the case against Musharraf's re-election.
Sharif, the prime minister overthrown by Musharraf in a coup in 1999, wants the judges restored immediately, but Zardari wants to avoid immediate confrontation with Musharraf.
The PPP, instead, favours linking the reinstatement of the judges to a constitutional reform package.
Additionally, it wants to sideline Iftikhar Chaudhry, the former chief justice of Pakistan's Supreme Court.
Musharraf protests
Meanwhile, lawyers and activists demanding the return of Chaudhry and other judges staged small protests in several cities on Monday.

Some burned effigies of Musharraf.

They were commemorating violence in Karachi last year, when an abortive visit to the southern city by Chaudhry prompted a counter-rally by a pro-Musharraf party.
Unrest that followed left some 40 people dead.