AGL Energy has asked the New South Wales Government to hold off on assessing its controversial Camden Gas Project expansion.
The company asked the planning department to halt its application to expand its coal seam gas project so it can consider community concerns.
The company has promised to use horizontal drilling rather than the controversial fracking technique.
But there has been fierce opposition to AGL's plan from many locals and several Coalition MPs.
The Energy Minister Chris Hartcher has issued a statement saying he commends the company on its commitment to community engagement.
Greens MP Jeremy Buckingham says the suspension is a cynical move by AGL which is designed to take the spotlight off coal seam gas because it is becoming a federal election issue.
"AGL have form in this regards, they've had contentious developments before," he said.
"When they've attracted community concern, they've withdrawn them then after an election put them back on the table and that's what we think they'll do here again.
"If they're serious they'll withdraw it entirely and if Barry O'Farrell is serious he should legislate to rule out coal seam gas in our suburbs, our drinking water catchments and our farms."
Local community group, the Scenic Hills Association, has fought against the planned expansion.
But its spokeswoman Jacqui Kirkby says she is not satisfied by today's announcement because AGL has only put the project on the back burner.
"All that they're trying to do is wear the community down, it isn't acceptable and it's not going to go away," she said.
"If Barry O'Farrell thinks it is going to defuse the situation or if AGL thinks it's going to defuse the situation...it's going to make it worse because there is a lot of pent up anxiety over this and we've had enough.
"This is an entirely cynical approach."
AGL says politics have not played a part in its decision to suspended its expansion plans.
Mike Moraza from Upstream Gas says the company wants more time to address community concerns and see if its plans can be modified.
"We've seen submissions recommending that certain things were addressed and done," he said.
"That's what we want to do in this pause process, just have a look at those submissions and see what amendments are feasible to the project."
AGL says the existing operations at the site have been producing coal seam gas since 2001.