A cross-party group of Senedd members said it needed certainty “beyond doubt” that members had the authority to pass the bill.
The plans had been separated from the expansion of the Senedd, which will see the number of parliament members increase by more than 50% from 60 to 96.
A motion to remove the Senedd Cymru (Electoral Candidate Lists) Bill from consideration will be debated and voted on next week.
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Later on Tuesday, Eluned Morgan, who became first minister of Wales in August, will answer questions from Senedd members for the first time in her new role.
She is expected to outline her plans for government after spending the summer travelling across Wales as part of a “listening” exercise.
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The government said it remained “committed to a gender balanced Senedd” and would instead explore other ways of ensuring gender parity.
“[We] have reflected over the summer and decided the best way we can achieve practical change for the 2026 Senedd election is to address this issue in a different way,” Ms Hutt said.
She added that the bill’s withdrawal did not prevent individual parties from considering “what action they can implement” to select a diverse range of candidates.
The executive order would instruct regulatory agencies to work with the industry and create a crypto council to represent the industry, according to people familiar with the plans.