The Cabinet took the decision in a meeting of about 20 minutes which was chaired by Prime Minister Manmohan Singh.
The decision capped a day of hectic activities which included Rahul Gandhi meeting the Prime Minister which was followed by a meeting of Congress Core Group headed by party President Sonia Gandhi.
"The Union Cabinet unanimously decided that the Ordinance regarding certain aspects of the Representation of the People Act as well as the Bill (pending in Parliament) should be withdrawn," Information and Broadcasting Minister Manish Tewari told reporters.
The Cabinet had approved on September 24 the Ordinance which sought to negate the Supreme Court order of July 10 which ruled that any lawmaker would stand immediately disqualified if convicted by a court.
The overturning of the decision came in the wake of Rahul Gandhi's trashing of the Ordinance as "nonsense". He had said it should be "torn" and "thrown out".