Hungary's prime minister on Friday shelved plans to introduce an Internet tax that had sparked major demonstrations and further concerns about civil liberties in the EU member state.
The new levy on online data transfers "cannot be introduced in its current form", the right-wing Viktor Orban, 51, said in a morning radio interview.
Orban also said that a "national consultation" on the Internet and taxes would start in January.
The Economy Ministry Friday evening -- just as a third demonstration in a week was about to start -- initiated the withdrawal of the proposed levy, it said in a statement.
The proposed Internet tax was seen by Orban critics as the latest step to silence dissent, particularly since Hungarians have to go mostly online to find news that doesn't toe the government line.
On Sunday more than 20,000 people took part in a demonstration against the measure in Budapest, and two days later over 50,000 took to the streets.
The European Union has criticised the proposed legislation, with a spokesman for digital commissioner Neelie Kroes calling it a "particularly bad idea" and "part of that pattern of actions which have limited freedoms" in Hungary.
On Friday Kroes said in a statement she was "very pleased" that it had been withdrawn.
Since Orban swept to power in 2010 -- he was re-elected this April, again with a two-thirds parliamentary majority -- the premier has been accused of eroding democratic norms in the former Communist central European country.Opponents at home and abroad say Orban has weakened the judiciary, muzzled the media and tweaked the electoral system in his favour, and put pressure on foreign-funded non-governmental organisations.
US President Barack Obama in September singled out Hungary, together with military-ruled Egypt, as places where "endless regulations and overt intimidation increasingly target civil society".
Opponents of the tax welcomed Orban's announcement with scepticism.
Several thousand protestors gathered again in downtown Budapest on Friday evening to reject the Internet tax once again, uncertain if the levy is scrapped for good.
"We feel that the consultation is not the end of this tax," Balazs Gulyas, main organiser of the demonstrations told AFP on Friday, adding that they wanted parliament to declare that the tax was dead.
The Economy Ministry's statement on withdrawal of the legislation was met with cheers by the crowd.
However, protestors still cited wider concerns.
"The Internet tax might be withdrawn, but protestors have more general problems with this system," Tamas Farkas, a manager who came to the demonstration with his young son, told AFP.
He added: "We are sliding towards an authoritarian system, and that will not be resolved by scrapping the Internet tax."
- Backtracking unusual -
With Hungary's main political opposition divided and weak, analysts say that the protests showed that within society, Orban has less support than his crushing victories in parliamentary, European and local elections this year would suggest.
Friday's backtracking was unusual for Orban, experts say, as he has only done so on minor issues in the past and mostly to mollify critics abroad such as EU officials in Brussels or the European Central Bank.
"The retreat means Orban's Fidesz (party) realised that they can face bigger losses if they continue to walk down the path of introducing the tax," Kornelia Magyar of the Hungarian Progressive Institute told AFP.
But she expects more battles.
"The fact that Orban called for national consultations seems to suggest that this is not a definitive retreat," she added.