Home Secretary Jacqui Smith has told MPs that plans to extend terror detention to 42 days will be dropped from the Counter-Terrorism Bill.
It follows a heavy defeat for the government in the House of Lords, which threw out the plan by 309 votes to 118.
Ms Smith said instead the measure would be in a separate piece of legislation to be brought to Parliament if needed.
The Tories said she should just say she was abandoning 42 days. The Lib Dems said it was a "humiliating retreat".
The government's plan to extend the period for which police can hold terrorist suspects before charging them squeezed through the Commons in June by just nine votes.
On Monday, it was defeated by a majority of 191 votes in the Lords, described by the Conservative former shadow home secretary David Davis as "the biggest defeat in the Lords in living memory".
In a forceful statement to MPs less than two hours after the vote, Ms Smith said: "I deeply regret that some have been prepared to ignore the terrorist threat, for fear of taking a tough but necessary decision."
She said she had prepared a new bill which would allow the director of public prosecutions to apply to the courts to question a terrorist suspect for up to 42 days "should the worst happen".
She said Britain still needed to "be prepared to deal with the worst", adding: "My priority remains the protection of the British people.
"I don't believe as some honourable members clearly do that it's enough to simply cross our fingers and hope for the best. That is not good enough."
Shadow home secretary Dominic Grieve said the prime minister's spin doctors had stopped Ms Smith from "saying in straightforward terms that she is abandoning 42 days".
He told Ms Smith: "You somewhat demean yourself when you, yet again, come back to this argument that those who oppose the government's measures are weak on terrorism."
He said the Conservatives were "perfectly prepared to be firm on terrorism" and pass difficult bills.
Lords reject 42-day detention plan
"But they have to be credible, they have to be based on evidence and they must not be put forward in a way that smacks of mere political posturing and gimmicks."
He questioned the need for the new bill, asking why the government could not simply use existing civil contingency powers.
Mr Davis, who resigned his seat in protest at the Commons vote on 42 days in June, described the move as a "spectacular climbdown".
Liberal Democrat spokesman Chris Huhne said the government had "comprehensively lost the argument" and was now in "humiliating retreat".
Lib Dem leader Nick Clegg added: "The decision to prepare emergency legislation instead is merely a fig leaf which does little to disguise their defeat."
He added: "The push for 42 days' detention was more about ministers posturing and looking tough than it ever was about fighting terrorism."