Georgia's ruling party has said it will withdraw a controversial draft law, in the face of mass protests and widespread international criticism.
Thousands of protesters have taken to the streets in Tbilisi this week in anger as a Russian-style law began its passage through parliament.
Under the bill, non-government groups and media would be targeted if they take over 20% of funding from abroad.
The main ruling party said it was pulling the bill "unconditionally".
Describing itself as a party of government responsible to all members of society, Georgian Dream referred to the need to reduce "confrontation" in society.
Georgia has applied for candidate status of the European Union and sought to join Nato. EU officials had condemned the draft legislation as incompatible with EU values.
In a statement, the EU delegation in Georgia said the move to drop the law was a "welcome announcement" and encouraged political leaders to resume "pro-EU reforms".
The government's U-turn followed a second night of clashes between riot police and protesters outside parliament. Tear gas and water cannon were used to disperse the demonstrators as they chanted "no to the Russian law".
In its statement, Georgian Dream complained that the proposal had been unfairly labelled and said that as the "emotional background subsides" it would explain the importance of the bill and transparency in foreign funding to the public.
Despite the decision to drop the bill, opposition parties said they had no plans to halt the protests. They called for clarity on how the proposals were to be withdrawn and demanded the release of protesters detained this week.
Prime Minister Irakli Gharibashvili had earlier condemned the "stir" over the bill. His party maintained that the legislation mimicked American laws from the 1930s, an argument also used by the Kremlin when it passed a similar law in 2012.
That Russian law has gradually intensified and now suppresses Western-funded NGOs, independent media, journalists and bloggers, who are required to label their content with the sinister phrase "foreign agent".
"Again and again they are trying everything to take us far away from the European Union, European values," said 30-year-old protester Luka Kimeridze.
Eka Gigauri of Transparency International in Georgia told the BBC that NGOs were already subject to 10 different laws and the finance ministry already had full access to accounts, funding and other information.
Georgian President Salome Zourabichvili backed the protesters and had vowed to veto the proposal, although ultimately the government would have had the power to override her move.
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