Legislation to give the Central Bank the power to force banks to cut standard variable rates is to be put on hold pending an impact assessment.
The private member's motion was put forward by Fianna Fáil's finance spokesman Michael McGrath and was passed through the Dáil despite opposition from then finance minister Michael Noonan.
Variable mortgage rates in Ireland have been controversial because they are higher than many other euro zone countries.
Attorney General Séamus Woulfe has advised that if the legislation was enacted it could be open to a constitutional challenge.
The proposed law had been opposed by both the European Central Bank and the Central Bank in Ireland.
ECB president Mario Draghi had warned that the introduction of the measures could result in banks increasing prices on other products.
The Department of Finance will now hire consultants to assess the impact of the legislation.
"While it is clear the Government is opposed to any control over interest rates, I think it would be irresponsible to ignore the AG's advice and so we are agreeable to an impact assessment being carried out," Michael McGrath said.
Mr McGrath is also introducing an amendment to the legislation to ban cash back offers by banks for mortgage customers.
Cash back offers have been criticised by the Competition and Consumer Protection Commission which argues that consumers can be manipulated to take out mortgages which cost more in the long run.
"We firmly believe that removing these cashback promotions from the market will force lenders to compete on rates and this will apply downward pressure on interest rates in the interests of consumers," Deputy McGrath said.