However, a news conference in Cairo was told that a referendum on a draft constitution would still go ahead as planned on 15 December.
Mr Morsi’s critics have accused him of acting like a dictator, but he says he is safeguarding the revolution.
He said the extra powers were needed to force through reforms.
Since taking office, Mr Morsi has been at loggerheads with the judiciary.
“The constitutional decree is annulled from this moment,” said Selim al-Awa, an Islamist politician acting as a spokesman for a meeting Mr Morsi held earlier with political leaders.
The president’s supporters say the judiciary is made up of reactionary figures from the old regime of strongman Hosni Mubarak.
But his opponents have mounted almost continuous protests since 22 November, when the decree was passed.
They are also furious over the drafting of a new national constitution because they see the process as being dominated by Mr Morsi’s Islamist allies.
An umbrella opposition group, the National Salvation Group, has demanded Mr Morsi rescind his decree and postpone a referendum on the new constitution due on 15 December.
The crisis has deepened to such an extent that the army, long the dominant force in Egyptian politics, warned on Saturday it would intervene to stop Egypt from entering a “dark tunnel”.
Several people have been killed in the recent spate of anti-government protests, and the presidential palace has come under attack.
The Cairo headquarters of the Muslim Brotherhood, the movement to which Mr Morsi belongs, were set on fire.