Manfred Reyes Villa, the governor of Cochabamba in central Bolivia, called off his referendum plans on Monday, after two people were killed when pro-government mobs took over the city's centre.
"I've decided to no longer pursue a referendum on regional autonomy," Reyes Villa told local radio on Monday.
He said that the leftist government of Evo Morales, the president, had stirring up protests against him.
But despite his decision, thousands of pro-Morales demonstrators, armed with sticks, guns and machetes, have continued to call for his resignation while occuping the centre of Cochabamba, a city 275 miles (440 km) east of La Paz.
Morales' government has sent extra police and soldiers to restore order in the city, but they have done little to halt the pro-government protests.
Morales has blamed Reyes Villa for the bloodshed, accusing him of supporting "separatism in Bolivia".
Power struggle
The conflict arose from a power struggle between the central government and a majority of the country's regional governors who demand more independence and a larger share of state revenues.
Governors used to be presidential appointees but voters had a chance to elect them for the first time in December 2005. Six of the country's nine governors belong to opposition parties.
Thousands of Morales supporters also rallied in El Alto, a La Paz suburb, to demand that the governor of La Paz province quit for backing the autonomy movement, even though a majority in his region voted against it in a nationwide referendum last July.
The El Alto demonstrators threatened to step up protests if the governor did not resign within 48 hours.
Promises of reform
La Paz's provincial governor, Jose Luis Paredes, told Reuters the opposition governors had agreed that if any one of them were forced to resign, the rest would step down and demand new regional and presidential elections.
Morales swept to power in a December 2005 election vowing to nationalize the energy sector and set up an assembly to rewrite the constitution to reflect the interests of the country's Indian majority.
More than 20 people have been killed in protests since Morales took office a year ago in South America's poorest country.
