Following the decision around 200 migrants who have made their lives in the sparsely-populated town will be affected, according to Italian media reports.
Anger in Italy grew Sunday over an interior ministry order to transfer all migrants out of a town at the centre of a national debate on the integration of asylum-seekers.
The ministry has said all migrants must leave the Calabrian town of Riace in southern Italy following the arrest of its mayor Domenico Lucano earlier this month for allegedly fiddling the system to benefit refugees.
Sources at the ministry were later quoted by Italian media outlets to have rowed back on the forced transfers, saying the migrants would "only be moved on a voluntary basis".
Those electing to remain, however, would no longer "benefit from the reception system".
The town -- whose population had been dwindling for decades -- made headlines around the world by welcoming migrants in an attempt to revitalise itself.
Interior Minister Matteo Salvini, however, has said he wants to reduce projects inspired by Riace and group asylum-seekers in large centres.
"For shame. This is not Italy!" former prime minister Enrico Letta said on Twitter, reacting to the decision.
"Stop Salvini. Don't look the other way," added the National Partisan Association (ANPI).
Salvini and his far-right League party have made Riace an emblem of their "war on the immigration business".
But following the decision to dismantle the model, around 200 migrants who have made their lives in the sparsely-populated town -- boosting jobs and development -- will be affected, according to Italian media reports.
Critics say the government should instead be waging war on organised crime in Calabria, a heartland of the mafia.
Naples mayor Luigi de Magistris, who worked in Calabria as a prosecutor for nine years, also railed against the government.
"If Lucano is the danger in Calabria, it means the mafia is winning," he said.
"If the government decides to deport the oppressed, fragile victims of oppressors from the world's regimes, then Riace must become a stronghold of resistance," he added.
Under Lucano's migrant programme, abandoned houses were restored and craft workshops reopened in a model that came to be copied in other "dying" hamlets.
He was placed under house arrest at the start of October on charges of involvement in organising "marriages of convenience" for asylum purposes, and has also been accused of skipping a tender process to favour co-operatives with ties to migrants.
His lawyers are preparing an appeal against the ministry, which has demanded a breakdown of all expenses.
"Salvini's priorities in Calabria are to send away families and children and dismantle a model of integration that has worked and is known around the world," said Laura Boldrini, former parliament speaker.
"It's right for every cent of public money to be accounted for, but how can the head of a party that has stolen 49 million euros from Italian citizens tell a Calabrian mayor that there can be no irregularities in the public finances?" she said.
Salvini's party was found this year to have fraudulently claimed 49 million euros ($58 million) in electoral expenses in 2008-2010.