The plan to expel African migrants from Israel had targeted some 42,000 migrants of Eritrean and Sudanese origin currently living in Israel and denied refugee status.
Government legal advisers informed the Supreme Court of the plan's cancellation after certain unspecified countries refused to host the migrants, a government source said.
"At this stage, the possibility of removal to a third country is no longer relevant," the advisers said in a statement.
Prime Minister Benjamin Netanyahu had previously mentioned Rwanda as a possible host country and, earlier this month, Uganda said it was "considering" an Israeli proposal to accept the deportees.
The deportation plan has attracted a wave of criticism, including from the UN refugee agency, Holocaust survivors, and parts of Israeli civil society.
The government originally announced a plan under which it would present migrants with $3,500 and the opportunity to leave on their own accord, or face indefinite imprisonment with eventual forced expulsion.
In early April, Netanyahu agreed to cancel the plan, saying a new agreement with the UN would allow 16,000 migrants to be transferred to "developed countries like Canada, Germany or Italy".
In exchange, Israel would give residency to an equal number of migrants.
But the premier cancelled the plan several hours later, after caving to pressure from his right-wing base.
'Reopen detention centres'
Shortly after news of Tuesday's cancellation broke, Netanyahu tweeted that he had instructed Interior Minister Aryeh Deri "to immediately prepare for the reopening of the detention facilities to the infiltrators" and to set up "means to find a solution to the problem".
The prime minister was referring to the February closure of the Holot detention centre in southern Israel.
The presence of migrants in Israel has become a key political issue, and Netanyahu is already under heavy pressure due to a string of graft probes.
He has repeatedly referred to them as "not refugees but illegal infiltrators".
Some 200 migrants detained for refusing to leave Israel were released in mid-April following a Supreme Court ruling.
Israel's highest judicial authority had ordered their release because of the government's inability to conclude an agreement with third-party host countries.
Human rights groups have long condemned Israel for its immigration policy and treatment of Africans seeking asylum.
Most of the migrants arrived in Israel after 2007, mainly from the Egypt's Sinai Peninsula.
Security along the once porous border has since been significantly tightened.
Many of them settled in a number of poor neighbourhoods in the coastal city of Tel Aviv, the country's economic capital.
Amnesty International welcomed the cancellation, but voiced concern over the continued practice of "voluntary" expulsions.
"Israel is still conducting what it calls 'voluntary' deportations, though in reality there is nothing voluntary about them," the London-based rights watchdog said in a statement.
"Israel remains under the obligation not to transfer anyone to a country where they would be at real risk of serious human rights violations," it added.
The UN has accused the Eritrea government of committing "widespread and systematic" crimes against humanity.
