Ministers have axed plans that would have scrapped compensation for victims of minor criminal assaults.
The Ministry of Justice (MoJ) wanted to limit Criminal Injuries Compensation Scheme payments so only victims suffering serious injuries could receive cash.
It hoped to save £50 million by cutting the bill for taxpayers, which last year stood at £449 million.
But critics claimed the move would leave victims unable to seek redress for being attacked and accused the government of putting deficit reduction before compassion for victims of crime.
Shadow justice minister Rob Flello welcomed last night's U-turn, saying: "Even contemplating these cuts that would have affected innocent victims of crime shows this Tory-led government is out of touch.
"We are on the side of victims and we will oppose this government's policies that threaten their needs."
An MoJ spokesman said: "The government is committed to providing the best possible support for victims of crime - maintaining compensation for the most seriously affected - and to reforming the criminal injuries compensation scheme to put it on a sustainable financial footing.
"We have listened to the views expressed in Parliament and will now consider our next steps."
The move comes a week after Justice Secretary Ken Clarke was ousted from the department and replaced with Chris Grayling, seen as more right wing.
Just last week, junior justice minister Helen Grant, in her first Despatch Box appearance since being promoted from the backbenches in Prime Minister David Cameron's Cabinet reshuffle, defended the proposed changes in the Commons.
She said: "We concluded that the scheme needed to focus resources on the victims who are most seriously affected by injuries that they suffer as a result of deliberate violent crime committed in England, Wales and Scotland.
"We believe that the provision of support services for victims at the point of need is a much better use of money than providing small amounts of compensation, in some cases long after the incident involved, for relatively minor injuries.
"For that reason we are removing payments for less serious injuries such as sprains and fractures."
Ms Grant told MPs the revamped criminal injuries compensation scheme represented "a coherent and fair way of focusing payments on those most seriously affected by their injuries, within an affordable budget".
She was replying to a short Commons debate led by Labour MP Kelvin Hopkins, who warned her: "To withdraw compensation from these innocent victims of crime goes against the very purpose of criminal injuries compensation and ignores the view held by successive governments for decades that victims of violent crime deserve more than just words.
"No one asks to be a victim of crime. Reducing, or removing altogether, the amount of compensation available to those people will send a clear message that the state does not view their injuries as serious or important."