Three special public prosecutors who were appointed to appeal against a trial court order that had handed life sentences to Ms Kodnani, Bajrang Dal leader Babu Bajrangi and eight others for their role in the Naroda Patiya massacre, have been asked to wait till the state's Advocate General gives his opinion in the matter.
The Special Investigation Team or SIT appointed by the Supreme Court to investigate Gujarat riots cases is expected to challenge the state government's latest decision. Sources said the SIT was "surprised and astonished" at the u-turn.
When Mr Modi's legal department sanctioned the plea for death in April, it was interpreted as yet another move by the Gujarat Chief Minister to distance himself from the 2002 communal riots that continue to cast a shadow on his political career.
Mr Modi is seen by many as the BJP's best bet to lead the party's campaign in the general elections now months away, but its allies like the Janata Dal (United) say that the 2002 riots under Mr Modi's watch, in which over a 1000 Muslims were killed in Gujarat, make him an ineligible candidate.
Back home, however, there has reportedly been much pressure on Mr Modi to review his decision. The Rashtriya Swayamsevak Sangh, which is the BJP's ideological mentor, and its other affiliates in Gujarat are reportedly very upset at the move.
Ms Kodnani, a doctor by profession, is the first MLA and the highest-ranking politician to be convicted in a Gujarat riots case. The three-time BJP MP from Naroda has also been an RSS star in Gujarat and, despite the serious criminal charges against her in the riots case, was made the state's Minister for Women and Child Development in 2007 by Mr Modi.
Last August, Ms Kodnani and 30 others were convicted for the murder of 97 Muslims in Naroda Patiya, on the outskirts of Ahmedabad, in rioting on February 28, 2002. Ms Kodnani was given a 28-year prison term. Babu Bajrangi was ordered to spend the rest of his life in prison.