Plans for a £3,000 "security bond" for some "high risk" overseas visitors to the UK are to be abandoned, the Home Office has confirmed.
The visa bond scheme was announced by Home Secretary Theresa May in June and was set to be introduced this month.
A Home Office spokesman confirmed a Sunday Times report that the policy would be scrapped.
The decision is thought to have been taken after Deputy Prime Minister Nick Clegg threatened to block it.
The aim of the scheme was to reduce the number of people from some "high risk" countries - including India, Pakistan, and Nigeria - staying in the UK once their short-term visas had expired.
Visitors would have paid a £3,000 cash bond before arrival in the UK - forfeited if they failed to make the return trip.
Mr Clegg initially proposed the idea of a visitor bond in March, but under his version of the policy it would only apply to people from "high risk" countries who had been refused a visa through the normal route.
Business Secretary Vince Cable later claimed the deputy prime minister's plan, which had suggested a bond of £1,000, had been deliberately misinterpreted by some of their Conservative cabinet colleagues.
Mr Cable also criticised the level at which the bond was set and said that it had caused "outrage" in India.
Among the departments understood to be opposed to the plans are the Foreign Office, Department for Business, Innovation and Skills, and the Department for Communities and Local Government.
"The Home Office version of the policy was not acceptable to the Liberal Democrats and was not support by other government departments," Lib Dem sources said.
"They have seen the writing on the wall and binned it off.
"We have been clear from the start that the version was just not acceptable to us."
The bond idea was also floated several times by the previous Labour government but never implemented.
But that did not stop Labour's shadow immigration minister David Hanson launching an attack on the U-turn, accusing Mrs May of being "all over the place and presiding over an immigration policy in chaos".
'Go home' vans
He added: "Investors in India are now put off from investing in the UK whilst the Home Office fail repeatedly to do anything about their failure at our borders to stop and return illegal immigrants, failure to tackle backlogs in processing delays or enforcement of immigration rules within the UK."
Labour MP Keith Vaz, chairman of the Commons Home Affairs committee, said: "During this shambolic process the Home Office has managed to upset a number of foreign governments and confuse millions of potential visitors.
"This is not the way to fashion a strong and effective immigration policy."
The announcement comes two weeks after a roll-out of Home Office vans with posters warning illegal immigrants to "go home or face arrest" was cancelled.
Mrs May told MPs she accepted they had "not been a good idea" and were too much of a "blunt instrument".
Immigration minister Mark Harper defended the government's approach, saying: "It is clear our reforms are working because net migration is down by a third since its peak in 2010.
He added: "We are building an immigration system in the national interest by tightening areas where it was abused.
"The Immigration Bill will reduce the pull factors and ensure those people who do come to the UK are here to contribute, and not access public services they are not entitled to."