The latest outcome of the auditor general's scathing criticism of government procedures for purchasing the Lockheed Martin Lightning II means all spending on the program is capped $8.9 billion until further notice.
Canadian Prime Minister Stephen Harper's government will handle the purchase, whenever it occurs, without recourse to the Department of National Defense.
Harper said last week Canada hasn't signed any contracts to purchase the F-35s and will conduct more oversight of the acquisition before deciding what to buy and when. Original plans call for the purchase of 65 F-35s for the Canadian air force.
"The auditor general has identified a need for greater independence and supervision over some of the activities of the Department of National Defense," Harper said.
"The government will put that supervision in place before we proceed."
As part of the damage-control exercise, Harper's conservative government is assigning responsibility for the proposed purchase to a new F-35 secretariat, an unprecedented move with far-reaching implications for the Department of National Defense.
Analysts said the government's rescue attempt would be without a precedent and could cause divisions within various parts of the government, most likely in the Department of National Defense.
An independent report on the F-35 acquisition program and costs is also planned.
With the funding capped at $8.9 billion, the government faces challenges both in terms of how many F-35s it can buy and how to deal with defense requirements for associated weapons, spares and training.
Canada's immediate task is replacing the CF-18 fleet, which is seen increasingly beyond refurbishment or upgrade. Canada operates about 78 CF-18 fighters that have already gone through upgrades.
Public Works Minister Rona Ambrose pledged "due diligence, oversight and transparency" in future purchase programs.
Opposition critics want the government punished over the F-35 affair and want Defense Minister Peter MacKay to resign on charges his department misled Parliament on the planned purchase.
Auditor General Michael Ferguson said the department kept the government and Parliament in the dark on the proposed purchase of 65 F-35s.
"Problems relating to the development of the F-35 were not fully communicated to decision makers, and risks presented to decision makers did not reflect the problems the JSF program was experiencing at the time," Ferguson wrote in his report.
The department told Parliament's budget officer in 2011 the F-35 program including maintenance and support would cost $14.7 billion but it had already estimated the actual price to be around about $25.1 billion.
The department also drew criticism for making decisions, including approvals, without proper documentation.
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