Australian Olympic Committee (AOC) President John Coates has withdrawn the organisation's target which aims for the country to finish in the top five nations at the Summer Olympic Games.
Coates, who is also an International Olympic Committee (IOC) vice president, revealed that the AOC Board had agreed to remove the top-five target from its funding guidelines for the Tokyo 2020 Games.
Athletics Australia chief executive Phil Jones was one National Federation leader who had criticised the target.
"I think it’s an artificial target and it doesn’t add anything to the likely performance of the team, so it’s better not to have it there," Jones told The Australian.
"I have always had the view there’s enough pressure on the athletes anyway without that."
A total of 29 medals at Rio 2016 marked Australia’s worst Summer Olympic tally in 24 years, with the number including just eight golds.
That was less than half the amount the country won at Athens 2004, where Australians topped 17 podiums.
Coates has also removed a top 15 target for the team that will attend the Pyeongchang 2018 Winter Olympics in South Korea.
Olympic Winter Institute chief executive Geoff Lipshut supported this move.
"If we had the resources to be top 15, I’d happily take that target on," Lipshut said to The Australian.
"If the money is not there, you have to focus on fewer athletes to achieve the target and it becomes a burden on those athletes."
Coates reportedly wrote to John Wylie, the chairman of the Australian Sports Commission (ASC), saying he had "continued to include the top five target without really considering whether this was something over which the AOC still had any real impact".
Coates is also said to have apologised to the AOC Athletes' Commission "given the additional pressure it imposed on our team".
The ASC is the main provider of funding for most Olympic sports, but its Government grant has declined over the last five years.
Back in November, Coates backed an AUD$50 million (£29.9 million/$37.3 million/€35.2 million) online lottery system aimed at boosting funding for sport and keeping the country competitive on the global stage.
Under the proposed lottery, people in Australia would be able to purchase lottery tickets with proceeds going towards funding sport and the arts.
It would follow the sport-funding model of Great Britain, runners-up at the Rio 2016 Olympic Games in August - eight places above Australia.
"We are 100 per cent supportive of the lottery proposal," said Coates at the time.
"Olympic sport is in desperate need of funding.
"We are being out-funded by other countries, particularly Britain and Germany.
"I would give the lottery wholehearted support and I hope it gets up."
Wylie has also said that funding has proved a problem.
"We're very conscious that we want to raise more revenue for Australian sport but we want to do it in a way that's responsible," he said.
"The fact is we are underfunded but we are not just sticking our hand out and looking for more taxpayer funds.
"We are unambiguously and unashamedly standing up for sport and saying this matters."