Millions of people have taken to Hong Kong's streets since June in the biggest challenge to China's rule of semi-autonomous Hong Kong since its handover from the British in 1997.
After refusing for months to scrap the bill, which aimed to allow extradition of criminal suspects to mainland China, chief executive Carrie Lam finally conceded as she called for calm and an end to violent protests.
"The government will formally withdraw the bill in order to fully allay public concerns," she said.
Initial reports in the local media flagging Lam's announcement raised hopes that giving in to the extradition demand could help end the crisis. Hong Kong's stock market climbed nearly four percent in afternoon trade after the reports emerged.
But those hopes were quickly tempered, with pro-democracy activists voicing anger and determination to press on with their broader democracy campaign.
"Too little, too late," prominent activist Joshua Wong said on Twitter.
Speaking later in Taipei, he said the protests would continue.
"Our determination and courage to fight for freedom will still continue," said Wong, who was arrested late last week as part of a police swoop on leading pro-democracy figures. "Hong Kongers deserve universal suffrage. We deserve to elect our own government."