Religious freedom laws will not be introduced to federal parliament until 2020 after hundreds of submissions were made to the draft bill.
The government will also be issuing a revised draft of the Religious Discrimination Act before the end the year to take into account issues that have been raised during the consultation process.
Prime Minister Scott Morrison said the decision was made earlier this week and will allow further engagement opportunities for concerned parties.
"We're about listening and getting this right," Mr Morrison said in a statement on Saturday.
"Our government takes the issue of discrimination against Australians for their religious beliefs very seriously.
"We made a commitment to Australians to address this issue at the last election and we are keeping faith with that commitment in a calm and considered process."
While Attorney-General Christian Porter in October said the laws were expected to be introduced and debate to kick off before Christmas, Mr Morrison on Saturday said the delay would provide the opportunity to "fine tune" the bill before it's introduced in 2020.
Liberal senator Concetta Fierravanti-Wells - who has raised concerns about the laws - welcomed the bill's delay.
Speaking at a forum on religious freedom hosted by Christian lobby group Australian Christian Alliance in western Sydney on Saturday, the senator said there are "genuine and legitimate concerns that have been raised".
"I have and have had real concerns in relation to the first bill and I am hopeful that with further consultation and engagement that we can deal with those issues," Senator Fierravanti-Wells told those gathered at the forum in Fairfield Heights.
Ultimately, however, what is important to concerned Australians is not what politicians decide, but what their religious leaders say, she said.
"If they say to you that they are confident that your religious freedoms have been protected, that is who you will listen to," Senator Fierravanti-Wells said.
"Unless that happens people in Australia will not feel assured."
It comes as Nine newspapers on Saturday reported that religious leaders are threatening to withdraw support from the bill unless greater freedoms are granted to Australians of faith.
In a draft letter obtained by the Sydney Morning Herald, a coalition of religious groups says: "We take the view that it would be better to have no Religious Discrimination Act rather than a flawed one."
On Saturday, Sydney Anglican Archbishop Glenn Davies welcomed the delay as the "wisest course of action".
"I commend @ScottMorrisonMP for his careful and consultative approach," Archbishop Davies posted on Twitter on Saturday.
"We are confident the government understands the concerns of faith groups and that a delay will ensure Australians get a better bill."
As the prime minister was releasing his statement, Labor frontbencher Kristina Keneally was addressing journalists in Sydney.
"This draft exposure bill seems quite friendless. I have yet to see any wholehearted or enthusiastic support coming from either religious organisations, equality groups or the business community," Senator Keneally said.
"It would suggest that the Morrison Government has some significant problems in relation to delivering on their commitment to deliver a religious discrimination bill before the end of the year."
Parliament sits next week for the final time this year.
Australian Associated Press