Lam said on Wednesday that the government had responded to each of the demands but admitted that it "may not be able to address all the grievances of people in society." She then called for dialogue rather than further violence.

The bill can only be fully withdrawn after the parliament resumes in the fall.

A full withdrawal of the bill is one of five demands that protesters have been fighting for. The proposed bill would have allowed people in Hong Kong to be extradited to mainland China for trial. Despite Lam's suspension of the bill in June, protesters continued to rally. On Sunday, the city saw its most violent day since mass protests first broke out earlier this year.

Hong Kong leader Carrie Lam said in a pre-recorded announcement on Wednesday that she will fully withdraw a contentious extradition bill that has sparked months of mass protests.

"The government will formally withdraw the bill in order to fully allay public concerns. The Secretary for Security will move a motion according to the Rules of Procedure when the Legislative Council resumes," she said via a translation, giving four actions that her government would push forward with.

Other actions included "direct dialogue" with the community, a review of Hong Kong society's "deep-seated problems" and the appointment of two new members to the Independent Police Complaints Commission (IPCC).

"Our foremost priority now is to end violence, to safeguard the rule of law and to restore order and safety in society. As such, the government has to strictly enforce the law against all violent and illegal acts," Lam added.

The Hang Seng index in Hong Kong had rallied more than 4% Wednesday following early reports that the bill would soon be withdrawn. It comes a day after Lam quelled rumors of Beijing's rejection to her resignation. Lam said on Tuesday she had never asked the Chinese government to let her resign to end Hong Kong's political crisis.

Hong Kong was a British colony until 1997, when it became a special administrative region of China under the "one country, two systems" framework which allows the territory a certain degree of legal and economic autonomy. There are rising concerns among the territory's citizens that their civil rights are being eroded under Beijing's rule.

Hong Kong protesters released their five demands in July. The demands include the following:

Fully withdraw from a proposed bill that would allow Hong Kong people to be extradited to mainland China.

Retract any characterization of the movement as a "riot."

Drop all charges against anti-extradition protesters.

Set up an independent committee to investigate the use of force by Hong Kong police.

Universal suffrage in elections for the city's chief executive and legislature by 2020.

— CNBC's Vivian Kam contributed to this report.

Correction: This story has been updated to correctly reflect that the extradition bill was suspended in June and that Carrie Lam announced the bill will be withdrawn.