A request for quotations, posted online last week by the DHS's Immigration and Customs Enforcement agency, sought a contractor to create a searchable database of license plates, showing the times and locations when they were spotted by plate-recognition cameras, electronic tag readers and other commercial and law enforcement means.
Some police forces have cameras mounted on patrol cars. Other images may be retrieved from border crossings, interstate highway on-ramps and toll plazas.
Officials said the database was intended to help catch fugitive immigrants living in the United States without legal permission.
But privacy and civil-liberties groups, as well as some lawmakers, responded with alarm to the plan, pointing out the system had the capability to track ordinary citizens under no criminal suspicion, even if that wasn't its stated goal.
ICE spokeswoman Gillian Christensen defended the system to the Washington Post in a report published online late Tuesday.
She said the database would be used only "in conjunction with ongoing criminal investigations or to locate wanted individuals."
ICE is the government's second largest criminal-investigations agency, after the FBI.
But after an uproar, she announced the U-turn decision by Homeland Security Secretary Jeh Johnson late Wednesday.
"The solicitation, which was posted without the awareness of ICE leadership, has been canceled," she said in a statement.
"While we continue to support a range of technologies to help meet our law enforcement mission, this solicitation will be reviewed to ensure the path forward appropriately meets our operational needs," Christensen said.
It was unclear if the proposal was dead or merely withdrawn for revisions.
The Web page that listed the request for quotations was no longer active when United Press International checked late Wednesday.
Lawmakers and privacy advocates said they supported the reversal.
The fact that the request for quotations was posted without ICE leadership knowledge suggested "a serious management problem within this DHS component that currently does not have a director nominated by the president," Rep. Bennie Thompson of Mississippi, the highest-ranking Democrat on the House Homeland Security Committee, said in a statement.
He encouraged agency officials to consult with the department's privacy and civil liberties officers in the future.
American Civil Liberties Union staff attorney Catherine Crump, who had characterized the plan to the Post in Tuesday's story as "yet another example of the government's appetite for tools of mass surveillance," told the newspaper Wednesday shelving of the idea was good news.
But "there are many other law enforcement agencies around the country that are already accessing these vast private databases of plate data," she said.
She urged "a broader conversation about what privacy restrictions should be put in place when the government wishes to access information on Americans' movements that stretches back for years and has the potential to paint a detailed picture of our daily lives."