Australia’s coalition government has withdrawn from plans to abolish the country’s newly-formed charity watchdog, following calls by sector members for it to remain.

The Australian Charities and Not-for-profits Commission (ACNC) was launched in December 2012 to register and regulate charities, but was due to be scrapped as part of a “red tape repeal day”.

Josh Frydenberg, a senior finance minister, told sector representatives at a meeting on Wednesday that the government was no longer treating plans to scrap the ACNC as a priority, although he also said plans have not been formally abandoned.

“We had a commitment to abolish the ACNC and to repeal the definition of charity and also to move back those responsibilities to Asic [the Australian Securities and Investments Commission] and to the Australian Tax Office and to also set up a centre for national excellence,” he said, according to the Guardian newspaper.

“That commitment still stands but after discussing this issue with the minister [for social services], Scott Morrison, I can say to you it’s not a priority for us to proceed with that at this time.”

The ACNC was criticised in March last year by former Australian minister for social services Kevin Andrews, for taking “a very heavy-handed approach” to not-for-profit organisations.

But sector leaders welcomed the news of its continuation on Wednesday.

Tim Costello, chief executive of World Vision Australia and chair of the Community Council for Australia, said the body was an important means of maintaining transparency and confidence within the sector.

“A lot of us in this room are very happy,” he said. “Who welcomes a regulator? But we have. There is for the first time in our history a dedicated body in the charities sector that is a cop on the beat. It’s already got rid of at least nine fraudulent charities, which hurts us all.”

The not-for-profit sector employs about a million people in Australia and is at the “heart of communities”, according to Costello.