In the first big misstep of her campaign, Truss set out plans to save billions of pounds a year in government spending in a pledge opponents said would require cutting the pay of public sector workers, including nurses and teachers, outside of the wealthy southeast of England.
Truss had said late on Monday she would introduce regional pay boards rather than having a UK-wide pay agreement, tailoring pay to the cost of living where people actually work.
But after criticism on Tuesday, Truss said: "I never had any intention of changing the terms and conditions of teachers and nurses. But what I want to be clear about is I will not be going ahead with the regional pay boards."
The U-turn came as a poll showed Truss with a smaller lead over her rival Rishi Sunak than previously thought.
A survey of 807 Conservative Party members by Italian data company Techne carried out July 19-27 found Truss was backed by 48 per cent, compared with 43 per cent for former finance minister Sunak.
The result suggests a much tighter race than a previous poll of Conservative members carried out by YouGov on July 20-21, which gave Truss a 24-point lead over Sunak.
Truss' public sector pay plan had faced criticism from the main opposition Labour Party and some Conservative MPs.
The Conservatives won the biggest majority in three decades at the 2019 general election by upending conventional UK politics and winning in more industrial areas in central and northern England with a pledge to reduce regional inequalities.
One Truss-supporting Conservative MP said the miscalculation would damage the rest of the campaign.
"This was a completely avoidable error but I don't think in the end it will stop her being prime minister," he said.
Sunak supporter Ben Houchen, the Conservative mayor of Tees Valley, said he was "speechless" at the proposal.
Millions of nurses, police officers and soldiers would have had their pay cut by 1500 pounds ($A2643) a year, Sunak's campaign said.
Rachel Reeves, Labour's finance spokeswoman, said Truss' plan would have sucked money out of local communities.
"This latest mess has exposed exactly what Liz Truss thinks of public sector workers across Britain," she said.
Sunak and Truss are competing for the votes of about 200,000 Conservative members who will select the next prime minister, with the winner announced on September 5.
Taxes have dominated the campaign race so far.
Sunak has accused Truss of being "dishonest" with voters over her promises of immediate tax cuts, saying he would wait until inflation is under control before cutting taxes.
Truss says that would push the country into recession.
More than 60 per cent of Conservatives in the Techne poll said Truss had better ideas on tax and inflation than Sunak.
They also favoured her immigration plans.
However, respondents said Sunak had better policies on Brexit and energy.
John Curtice, a professor of politics at the University of Strathclyde and one of the UK's leading polling experts, said with so little polling it was hard to be certain the race was yet over for Sunak.
"We perhaps don't know quite as much as everybody is confidently asserting," he told GB News on Monday.
"In a race which certainly had seen some fairly radical and bold proposals made by both candidates... we certainly don't know what impact if any it (has) had on the Tory membership as a whole."
