Iran has reportedly dropped a motion which would have seen athletes banned from competing against rivals from Israel by law.
The Government in Tehran has continued to order Iranian athletes not to face Israelis at sports events, although this is not officially outlined in law.
Iran's supreme leader, Ayatollah Ali Khamenei, has repeatedly praised athletes who have refused to face opponents from Israel.
Since its Islamic Revolution in 1979, Iran has refused to recognise Israel and has no ties with the country.
According to Radio Farda, a "double urgency" motion was approved on May 12 that would have officially banned Iranian athletes from competing against opponents from Israel.
The article reportedly read that "any competition or sporting event, whether formal or preparatory, between Iranian athletes and sports teams with Israeli opponents is prohibited".
Iranian national federations would have been urged to take "appropriate measures to prevent the imposition of any international penalties and sanctions on Iranian athletes".
The motion formed part of a wider bill against Israel, which was claimed to be in response to the country's "hostile actions against regional and international peace and security".
The bill was passed by Iran's Parliament yesterday but the motion regarding a ban on facing Israeli athletes was removed from the final draft.
This reportedly followed a request from the Minister of Sports and Youth Affairs to the commission drafting the bill.
Had the motion been passed into law it would have marked a further escalation in the controversy over Iran's stance on Israel within sport.
Iran was suspended by the International Judo Federation (IJF) last year.
The Iranian Government had allegedly ordered Saeid Mollaei to lose at the World Championships in Tokyo in August, to ensure he did not face an Israeli in the under-81 kilograms class.
The former world champion alleged he had been instructed to withdraw from the competition by Iran Judo Federation head Arash Miresmaeili and the National Olympic Committee of the Islamic Republic of Iran (NOCIRI) President.
Mollaei has since defected from Iran, seeking refuge in Germany before being cleared to compete for Mongolia by the IJF.
The incident had come despite Iran sending a letter to the IJF, copied to the International Olympic Committee (IOC), in May of last year, where the nation vowed to end its decades-long boycott against Israeli athletes.
IOC President Thomas Bach said in January that Iran had not been suspended by the organisation because the country had sent the letter, assuring it will end its discriminatory policy against athletes from Israel.
Bach said the NOCIRI had promised to "in future fully comply with the Olympic Charter" in a letter to the IOC.
The German claimed the document had been signed by Iranian Sports Minister Masoud Soltanifar and NOCIRI President Syed Reza Salehi Amiri.
Iran has escaped punishment for its stance to date, despite the clear violation of the Olympic Charter that Bach helped draft.
Had the motion been passed into law, calls for sanctions on Iran would likely have increased, including the possible banning of the country from the rescheduled Tokyo 2020 Olympic Games.