The Conservative leadership candidate had stated that she wished to implement regional pay boards in order to save up to £8.8 billion.
However, several senior Conservatives opposed the policy, claiming that it would result in lower pay for millions of workers outside of London.
The Truss team has now stated that the proposal will not be pursued.
A spokesperson for the presidential candidate stated that there had been “a wilful misrepresentation of our campaign.”
“Current levels of public sector pay will absolutely be maintained,” they said. Anything to the contrary is simply incorrect.”
Ms Truss announced the policy on Monday night, saying she wanted “a leaner, more efficient, more focused Whitehall” and outlined plans that suggested annual savings of £11 billion.
This included £8.8 billion from implementing regional pay boards, which would mean that civil servant pay – and potentially other public sector workers’ salaries – could be adjusted to reflect the area in which civil servants work.
Workers in the south-west or north of England, for example, could have been paid less than those in the south-east.
The Truss camp argued that, in addition to saving money, it would help boost growth in areas where the private sector had been pushed out by public sector salaries.
However, the proposal was dropped after just over 12 hours due to strong opposition from some Conservatives.
“This wasn’t a mistake, Liz wanted this in 2018 [when she was a senior Treasury minister],” a source from Mr Sunak’s team said.
“The lady is for turning,” they added, referring to a well-known Margaret Thatcher quote.
Tees Valley mayor Ben Houchen called the policy “horrifically bad,” telling the BBC’s World at One that a general election would have been “catastrophic.”
Mr Houchen, who supports Rishi Sunak, believes the U-turn will force the foreign secretary to reconsider policy.
“There are a lot of tasty soundbites from Liz – what we’re seeing now is that as people start to scrutinise that detail, it can unravel quite quickly,” he explained.