Earlier this week the bank insisted that it would not withdraw the offer of paying 28 cents dividend per share on 26th October, but after increasing pressure the board have decided to withdraw it.
The move was welcomed by one of the bank's critics, Michael Fallon, the deputy chairman of the Treasury Select Committee.
He told City AM that during "this fiasco" the move "was the first sign of humility" shown by Northern Rock.
"There's still a lot of explaining to do. It's highly likely the chairman and chief executive will be called before the Treasury Select Committee in mid-October."
MPs had called on the bank to withdraw the dividend payments stating that it sent the wrong message to taxpayers and customers.
The move represents a change of stance from Northern Rock who said they would honour the dividend even though it was not a legal requirement.