The move to withdraw the bill came a week late due to protests at the Legislative Council during the Chief Executive's policy address, reported Hong Kong Free Press.
The second reading for the bill resumed on Wednesday. Secretary for Security John Lee then requested the Legislature to withdraw the bill.
The bill, which would have allowed for criminal suspects to be extradited to mainland China, prompted outrage when it was introduced in April. Hundreds of thousands of people took to the streets and the bill was eventually suspended.
But protesters have vowed to continue their demonstrations, which have spiralled into a wider pro-democracy movement.
Earlier in the day, Hong Kong released from prison the murder suspect whose case triggered the city's mass protests and led to a diplomatic row. Chan Tong-kai, 20, is accused of murdering his pregnant girlfriend in Taiwan last year before fleeing back to Hong Kong.
But Hong Kong and Taiwan do not have an extradition treaty, and his case was cited when the government proposed amending the law. He was in jail for money laundering.
Leaving prison on Wednesday, Chan Tong-kai apologised to the victim's family and said that he was willing to turn himself in to Taiwanese police to face charges, the BBC reported.
The now scrapped bill would have allowed Hong Kong to extradite criminal suspects to places it does not have an extradition treaty with, including mainland China, Taiwan and Macau. Critics feared that extradition to mainland China could subject people to arbitrary detention and unfair trials.
Although the Hong Kong protests started over the extradition bill, they have since widened to call for full democracy and less interference from Beijing.
The unrest that the bill sparked has become the worst crisis that Hong Kong has faced since the former British colony was handed back to China in 1997.
It has also presented a serious challenge to China's leaders in Beijing, who have painted the demonstrators as dangerous separatists and accused foreign powers of backing them.
( With inputs from IANS )