Installation of the Green Dam/Youth Escort software was set to become mandatory from 1 July, but was not enforced after sparking local and international protest.
At the time, China's ministry for information technology said the delay was to give PC makers more time to prepare.
But now the ministry has announced that the internet filtering software is to be deployed only in schools, internet cafés and other public places, according to the Financial Times.
The ministry said it would respect consumers' freedom of choice and would not force the installation on all PCs sold in China.
Authorities claimed the software was to protect young internet users from harmful content, but tests found that it also blocked politically sensitive content.
Thousands of people in China protested against the censorship plan by signing up to proxy servers that enabled them to bypass the government's controls.
Security experts also warned that weaknesses in the software could make users vulnerable to attacks from hackers.
This article was first published by Computer Weekly