President Michel Temer's office will issue a new decree on Tuesday that "restores the conditions of the area, according to the document that instituted the reserve in 1984," the Ministry of Mines and Energy said in a statement.
Last week, environmental activist group Greenpeace said at least 14 illegal mines and eight clandestine landing strips were already being used by miners in the Denmark-sized reserve known as Renca in the eastern Amazon.
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Temer's decree signed on August 25 on opening up Renca was suspended days later after an international outcry.
The president had argued that lifting restrictions will allow Brazil to boost its struggling economy and also push the hugely destructive wildcat mining operations out of business.
In announcing the government was formally withdrawing the decree, the mining ministry insisted that the conditions that led to the measure in the first place were "still present."
"The country needs to grow and generate jobs, attract investments for the mining sector, including to exploit the economic potential of the region," it added.
The rain forest there is rich in gold and other valuable commodities but has been protected for decades from private industry and is home to several indigenous tribes.
Critics of Temer's decree included international environmental groups, the Catholic Church and even supermodel Gisele Bundchen, who is Brazilian.
The Renca reserve is home to the indigenous Aparai, Wayana and Wajapi tribes and vast swaths of untouched forest, covering more than 17,800 square miles (46,000 square kilometres).
Environmental groups say opening up Renca to mining would accelerate the advance of private mining and deforestation of preserved areas.
"The cancellation of the degree shows that, no matter how bad it is, no governing politician is absolutely immune to public pressure," said Marcio Astrini, public policy coordinator for Greenpeace Brazil.
"It is a victory of society over those who want to destroy and sell our forest."
He then added: "Renca is just a battle. The war against the Amazon and its different peoples, promoted by Temer and big agro business, is still on.
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