The move came as Prime Minister John Howard urged Muslims to act fast to defuse a growing firestorm over Sheikh Taj Din al-Hilaly's comments to avoid tarnishing the community's image in society.
The sheik will not give sermons for the next two to three months after he said in one of his religious speeches that immodestly dressed women were inviting sexual attack, Muslim community leaders announced.
"We feel at this stage that is only fair that he be stood down for the next couple of months, said Abdul El Ayoubi, of the Lebanese Muslim Association, which administers the Sydney mosque where the cleric is based.
"He has got the Hajj trip that's coming up in a month-and-a-half so he will be away. And it will only add fuel to the fire if he continues in the interim to give sermons," he said.
The decision followed an emergency meeting of Muslim leaders late as some political leaders called for the cleric's expulsion from Australia following the publication of his translated comments on Thursday.
While Muslim leaders decided that no action would be taken against Sheik Hilaly over what they termed a "misinterpretation" of his comments, some members of the community were ill-at-ease with the explanation.
"There were a few items there we didn't fully accept," said Lebanese Muslim Association president Tom Zreika.
"Some people on the board would have liked to see more done but unfortunately we can only speak as a board," he said.
Political storm
The shell-shocked Egyptian-born mufti of Australia took ill as controversy erupted over the comments he made last month in a sermon in a Sydney mosque that he insists have been lost in translation, his friends said.
Mr Howard, who dismissed the cleric's apparent stance that women without headscarves were to blame for attracting sexual advances, as "preposterous," said the incident was a crucial test for Australia's Muslim community.
"What I am saying to the Islamic community is this: If they do not resolve this matter, it could do lasting damage to the perceptions of that community within the broader Australian community," he told Southern Cross Broadcasting.
"If it is not resolved, then unfortunately people will run around saying 'Well the reason they didn't get rid of him is because secretly some of them support his views'," the prime minister warned.
Comments 'misunderstood'
As the row gathered pace, the Muslim cleric was forced to make a grovelling apology in which he said his comments had been misunderstood.
"I unreservedly apologise to any woman who is offended by my comments," Sheikh Hilaly said in a statement.
"I had only intended to protect women's honour, something lost in The Australian presentation of my talk," he said.
The Sheik says his comments have been misinterpreted in the same way the Pope was misunderstood in a sermon on Islam.
He claimed he was quoting an ancient Islamic scholar to make a point when he made the comparison between immodest women and uncovered meat.
Earlier this year Pope Benedict outraged Muslims by quoting a 14th-century Byzantine emperor, linking Islam to violence.
But Mr Howard said that despite the apology, most Australians, including most Muslims, were appalled by Sheik Hilaly’s comments.
"I think what he's done is so unacceptable and so out of line with not only mainstream Australian opinion but ... mainstream Muslim opinion," he said, adding however that his government was not in a position to deport the mufti.