Controversial plans to outlaw soup runs for homeless people on the streets around Westminster Cathedral in London have been dropped.

Campaigners called the U-turn by Westminster council a victory for common sense, saying that the "draconian" proposals would have made it a crime to give free food to homeless people in parts of the borough.

Conservative-controlled Westminster sought to introduce a byelaw this year allowing officials to fine people in and around the Westminster Cathedral piazza if they "lie down or sleep in any public place", "deposit bedding" or distribute free food and drink. It was the council's second attempt to introduce a byelaw banning soup runs in recent years. The council argued that the soup runs provided a magnet for homeless people and encouraged begging, crime and antisocial behaviour in the area.

But it said on Wednesday that after discussions with homeless charities and civil liberties groups, it had agreed to drop the plans in favour of developing a more co-ordinated approach to meeting the needs of homeless people in the borough. This will include finding indoor locations for charities to provide food.

The turnaround follows intensive campaigning from organisations including Liberty, Church Action on Poverty, and Housing Justice, which had described the move as an attack on civil and religious freedoms.

A committee comprising the council, homeless charities, residents and soup run providers has been set up to locate alternative indoor sites in Westminster and in other parts of London. Charities estimate that around 1,600 people sleep rough in Westminster every year, many around Victoria station and Westminster Cathedral.

Sabina Frediani, campaigns co-ordinator for Liberty, said: "Credit to Westminster council for responding to public concern in such a positive way and dropping such a harsh and ill-judged proposal. The byelaw would have criminalised acts of charity at a time of recession and at best, merely shunted homeless people on to a different part of the capital.

"Thankfully, following positive discussion and negotiation with homelessness charities, the council has recognised that it is not its place to tell us that we cannot give our food to the needy."

Daniel Astaire, Westminster council's cabinet member for adult services and health, said: "Our entire approach to homelessness and rough sleeping is about improving people's lives and we believe that feeding people on the streets is not a civilised way to help people in the 21st century. The needs of rough sleepers can be best met under an umbrella of support services across Westminster that can best be found indoors and off the streets.

"Whilst we differ on some points, everyone involved agreed that the situation on the piazza was unacceptable and the number of soup runs has since decreased significantly in this area. Through collaborating with all parties involved, the needs of rough sleepers and the community have been met without the need at this time to pursue the legislative route of a byelaw."

Alastair Murray, deputy director of the charity Housing Justice, said: "We welcome the news that Westminster council has dropped the proposed byelaw making it a criminal offence to feed homeless people on the street.

"Our hope now is to continue to work together with councils, homelessness agencies and churches to find more indoor venues and to create a better and more effective safety net. We want to see more services open in the evenings and weekends, in all parts of London, to meet the needs of the growing numbers of street homeless people."