The Liberals, who sit in minority, in 2022 pledged to introduce a mandatory pre-commitment card based on a recommendation from the state's gaming regulator.
The card would have forced people to set maximum loss limits of up to $100 a day or $5000 per year.
In February, the government said implementation would be pushed back until 2025 because the system was taking time to design.
The government on Tuesday announced it had deferred progress on the card, but would continue to pursue other harm minimisation strategies as part of its election pledge.
Tasmania's Community Services Minister Roger Jaensch says harm minimisation will be broader. (Rob Blakers/AAP PHOTOS)
"The government will develop a broader harm minimisation package that may include facial recognition technology and other emerging technologies," Community Services Minister Roger Jaensch said.
The government said it would monitor the progress of card-based gaming systems in other jurisdictions.
It said a report by MaxGaming, the company in charge of the card reform, had revealed a likely significant cost increase and the need to create a centralised banking system.
In 2022, then-treasurer Michael Ferguson announced the move, hailing it the "gold standard" of harm minimisation measures.
Mr Ferguson, who has since moved to the backbench, told parliament on Tuesday he was disappointed with his party's decision and would continue to fight for the reform.
The Greens and several state and federal Tasmanian independent politicians slammed the government.
"(The) decision to abandon the mandatory precommitment card for poker machines is sickening," state Greens leader Rosalie Woodruff said.
"(The) model ... would have been nation-leading. It would have saved lives and livelihoods, given kids a better life, benefited our community and been better for the economy."
Federal independent MP Andrew Wilkie said the Liberals were in the "back pocket" of the gambling industry.
Anglicare Tasmania said facial recognition technology was a second-best solution.
"Over the past 12 months, 15,400 Tasmanians using poker machines were at risk of harm," Anglicare social action and research centre co-ordinator Mary Bennett said.
"Four out of five Tasmanians who engaged with Anglicare's gamblers help service nominated poker machines as their main form of gambling."
The Tasmanian Hospitality Association in 2022 said the proposed reforms had blindsided industry and would take away people's free choice.
Parliament on Tuesday evening debated a no-confidence motion in Premier Jeremy Rockliff brought forward by the Greens who accused him of lying to the state.
Mr Rockliff said the motion was a personal attack.
The government is propped up by a crossbench that includes five independents - some have pledged to consider no-confidence motions on their merit.
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