Instead, officials said they would work "to gain public understanding" about the country's economic future in the aftermath of the Fukushima nuclear disaster.
The initial government plan to slowly phase out all nuclear energy facilities by 2040 was a reaction to strong public skepticism about the safety of nuclear energy following the Fukushima earthquake and tsunami.
However, opposition by business and cities where nuclear plants are located forced the government reversal.
On Wednesday, the Cabinet said it would "take into consideration" the 2040 goal.
Before the quake, Japan got about 30 percent of its electrical power from 54 reactors across the country.
Business groups had criticized the no-nuclear plan as impractical, saying it would severely harm Japanese manufacturing. On Tuesday, the chairman of the country's biggest business association called on the prime minister to abandon the goal.
As the government announced its change of mind, it also declared the creation of a new nuclear oversight agency in a bid to regain public trust in the industry. Critics immediately called the new agency into suspicion, noting that the head of the agency, Shunichi Tanaka, once led a government agency tasked with building a strong nuclear industry.