Housing officers had drawn up a scheme under which elected councillors were to be presented with a list of possible travellers' camps with three preferred sites in Pitsmoor, Firth Park and Darnall.
It was also revealed that more than 25 other sites had also been earmarked, from Stocksbridge in the north to Norton aerodrome in the south, sparking a rash of protests across the city.
Sheffield Council initially said it had been forced to draw up the list under legislation introduced by the previous Government, which obliged local authorities to make provision for travellers.
But council leader Paul Scriven said plans unveiled by the new coalition administration to drop the planning requirement meant they could rethink their ideas about where camps should go.
Lib Dem Paul Scriven said: "We welcome the new guidance coming from the Government that existing regional strategies will be abolished, and decision making on housing supply, including for travellers, will be made local.
"This will give us some flexibility that we haven't had before. Given this announcement we have decided that it would be wise to see how national legislation changes and if we still need all the new sites before we start consultation."
Burngreave councillor Ibrar Hussain, who led opposition to a camp in his ward, said: "It is very welcome that this has been put on hold. We now need proper details and confirmation as to what happens next. I hope the Lib Dem council has learned lessons from this.
"The way it was done was disgraceful."