Malcolm Turnbull has withdrawn the China extradition treaty from debate in parliament because of its likely defeat and the potential fallout for Australia-China relations.
The Labor shadow cabinet agreed at a meeting on Monday night to oppose the treaty and the decision was due to go to caucus for approval on Tuesday.
But the prime minister phoned Bill Shorten on Tuesday morning before the caucus meeting to inform him the treaty would be withdrawn pending "further consultations".
The treaty was also expected to be voted down by crossbenchers and at least three Liberal senators.
Former prime minister Tony Abbott - who talked up the treaty when Chinese President Xi Jinping visited Australia in 2014 - told The Australian newspaper China's legal system still had some way to evolve before the government could have confidence it was just and fair.
© AAP Image Prime Minister Malcolm Turnbull.
Foreign Minister Julie Bishop said Australia had extradition treaties with other countries to ensure it did not become a safe haven for criminals.
Australia has deals with about 39 countries around the world, including Venezuela, the United Arab Emirates and Vietnam, and it would be in Australia's national interest to add China to the list, Ms Bishop said.
Ms Bishop insisted all such treaties had safeguards in place to ensure Australia's legal and political systems had oversight.
She said people would not be extradited if they face the death penalty, torture fears or the prospect of an unfair trial.
The minister would also have total discretion and there would be review options through Australian courts.
Mr Turnbull had described the treaty as an important part of Australia's co-operation with China on law enforcement and cited a $100 million methamphetamine bust as proof of the crime-fighting ties.
Former Liberal senator Cory Bernardi, now sitting under the Australian Conservatives banner, was due to move to overturn the treaty.
He has concerns about China's legal system, which he claimed has a 99.9 per cent conviction rate.
"That doesn't strike me as an open and transparent legal system," he told ABC radio.
Former prime minister John Howard signed the extradition treaty in late-2007 but it has never been ratified.
I would love to have seen the look on Mals face when his own team crossed the floor