Sir Keir Starmer has been compelled to withdraw his Chagos Island Bill amid fierce American opposition to the agreement.
President Donald Trump condemned the Prime Minister's proposal to surrender the Indian Ocean archipelago to Mauritius earlier this week, describing it as "an act of great stupidity".
The legislation had been scheduled for debate in the House of Lords on Monday but was postponed on Friday evening.
However, it was delayed following a Tory motion tabled on Friday morning, urging postponement of ratification to prevent potential violations of international law.
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Reacting to the news, Shadow Foreign Secretary Dame Priti Patel said: “This is a major victory for everyone standing against Keir Starmer’s disgraceful Chagos Surrender.
“In the face of relentless Conservative pressure, Labour have pulled their shameful Bill from Monday’s order paper.
“The deal, which hands British sovereign territory and £35 billion to an ally of China, should be dropped altogether. The Conservatives will continue to fight the surrender every step of the way."
Under Sir Keir's proposed arrangement, Britain would relinquish control of the Chagos archipelago while securing a lease on the Diego Garcia military base.
Keir Starmer has been compelled to withdraw his Chagos Island Bill
|GETTY
The facility, constructed during the 1970s, serves as a strategic installation for both British and American armed forces.
However, Conservatives have argued this transfer would contravene an agreement signed between London and Washington in December 1966, according to The Telegraph.
That treaty, registered with the United Nations the following year when the territory became British Indian Ocean Territory, explicitly states the Chagos Islands "shall remain under United Kingdom sovereignty".
Ministers acknowledged in late December that discussions with the United States about amending 60-year accord were underway, although these negotiations remain incomplete.
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Conservatives have argued this transfer would contravene an agreement signed between London and Washington in 1966
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Kemi Badenoch, the Conservative leader, declared the agreement "cannot progress while this issue remains unsolved".
He added: "Throughout the Chagos debates, Keir Starmer has tried to hide behind the cover of international law; now the Conservatives are exposing that his shameful surrender may be illegal."
Previously, Dame Priti launched a scathing attack on the PM's judgment.
"He is happy to hand over British sovereign territory and £35billion of taxpayers' money to an ally of China – even if it conflicts with international law.
"As a lawyer, he should know better. But his desire to appease Beijing clouds his judgement, as we saw with his decision to approve the Chinese spy hub super embassy this week."
The Government has maintained reaching an agreement with Mauritius is essential for security purposes and would prevent an expensive legal dispute over the territory.
Sir Keir has cited a non-binding 2019 International Court of Justice ruling that determined Britain should hand sovereignty of the islands to Mauritius.
Baroness Chapman, the Foreign Office minister, stated in December: "The agreement between the UK and Mauritius secures the important UK-US military base on Diego Garcia.
The Government has maintained that reaching an agreement with Mauritius is essential for security purposes
|GB NEWS
"The agreement was tested at the highest levels of the United States' security establishment, across multiple agencies, and it has been backed by our key allies and international partners, including the US and all our Five Eyes partners.
"Talks are ongoing to update the UK-US Exchange of Letters on the operation of the Diego Garcia Base."
Lord Callanan, shadow Foreign Office spokesman in the Lords, wrote to Baroness Chapman on Friday, questioning whether the Chagos deal would remain lawful if the 1966 treaty stayed unchanged.
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