The Government has agreed to freeze David Bain's compensation claim while his legal team mount a High Court challenge.
Last week Bain's lawyer's asked for a judicial review of Justice Minister Judith Collins' handling of the case.
They also asked for the claim, for wrongful conviction and imprisonment over the 1994 murder of his family, to be put on hold.
Cabinet today decided to grant the formal request.
Collins announced the move - and re-iterated the judicial review will lead to further delay. The application for compensation is already three years old - and a high court decision is expected to take several months.
"Mr Bain is not entitled to any compensation as his application falls outside Cabinet guidelines," Collins said. "The process for considering Mr Bain's application and any decision regarding compensation is entirely at Cabinet's discretion.
Long term Bain support Joe Karam said he was seeking a judicial review of the actions taken by Collins since she received a report by retired Canadian judge Justice Ian Binnie's report in late August 2012.
Binnie said Bain should receive a payout and was innocent on the balance of probabilities. But Collins insisted the report was flawed and sought a peer review by New Zealand QC Robert Fisher. He backed her concerns.
Ministers were to decide this week whether to commission a new report, but Bain's team pre-empted that with their High Court application.
They have accused Collins of conducting a "secret process," breaching Bain's rights to natural justice, acting in bad faith, abusing her power, and acting "in a biased, unreasonable and predetermined manner."
Collins disputes the accusations saying she has taken steps to ensure the process is "fair and proper throughout."
Mr Bain spent 13 years in prison but in 2009 was acquitted of killing five family members.