A decision to this effect was taken at a meeting of the state Cabinet chaired by Parliamentary Affairs Minister Indira Hridayesh, Chief Secretary Shatrughna Singh said after the meeting.
The Cabinet, however, resolved to constitute a Special Investigating Team (SIT) to probe the sting operation.
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The notification recommending CBI probe was issued on April 2 when the state was under President's rule.
Since law and order is a state subject, CBI can probe cases of crime in a state only on the recommendation of the government concerned or under instructions from court.
Singh said the Law Department had given concurrence to the proposal to withdraw the notification.
Rawat was in Kedarnath when the Cabinet met under Hridayesh and decided to withdraw the notification.
The sting CD made by the editor-in-chief of a private news channel and circulated by the nine Congress rebels who had created a political crisis in the state by siding with BJP in the Assembly, purportedly shows Rawat negotiating a money deal with the journalist to buy the support of MLAs who had revolted against him.
After many twists and turns, Rawat was finally reinstated as Chief Minister, over six weeks after he was ousted by the Centre, with the Supreme Court putting its stamp of approval on the floor test in the state Assembly.
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