The work-from-home policy, which has been in place since the pandemic, had fuelled concerns amongst voters who favoured the practice that it would encourage the private sector to follow suit.
With one month to go until Australians go to the polls, Mr Dutton had backed down.
"We made a mistake in relation to this," he told the Today show on Monday.
"It's important that we say that and recognise it.
"We've listened to Australians and we've made it very clear that work from home is a reality for many people, for our friends, for people in our workplace and we're supportive of that."
The coalition has also backed off on plans to fire public servants, with finance spokeswoman Jane Hume saying the sector would be whittled down by 41,000 over five years through a hiring freeze and natural attrition.
"There will be no forced redundancies," she told Sky News.
Mr Dutton now claims this was "always the plan" and accused Labor of "contorting that into something else".
"For us, the priority is how we help families," he said.
"Australians will be asking: who do they trust to manage the economy?"
However, the backflips have raised questions over how the coalition plans to find savings - if it wins government on May 3 - after saying the cuts to the public service would save $7 billion.
Labor had used the unpopular policies to sow doubt about the opposition's plans, claiming the cuts would be the first in a 'long, unknown list'.
Labor cabinet ministers are now arguing that Mr Dutton's u-turns show he can't be trusted.
"Peter Dutton will say anything to get himself elected as prime minister," Workplace Minister Murray Watt told the ABC.
The work-from-home policy, in particular, had risked turning off female voters.
"Peter Dutton's personal satisfaction ratings have sunk like a stone to his lowest ever in YouGov's public data poll since he tied himself to Trump-style policies of banning work from home and sacking 40,000 public sector workers," YouGov's Paul Smith said.
Labor contends that flexible work arrangements particularly benefit women who can take on more work while being able to look after children at home.
The share of women working full-time has increased from 54 per cent to 58 per cent as work-from-home arrangements have become more common since COVID-19, Australian Bureau of Statistics data shows.Â
This may also be, in part, due to increased public spending in traditionally female-dominated industries like health and child care, but studies have shown that working from home has reduced the gender pay gap.
Labor analysis shows that families where women are forced to drop work as a result of cuts to flexibility arrangements could lose as much as $740 a week in income.
As Prime Minister Anthony Albanese and Mr Dutton enter the second week of the election campaigns, the opposition leader is hoping to turn a new leaf and shift momentum.
The latest Newspoll shows Labor is leading the coalition 52 per cent to 48 per cent on a two-party-preferred basis, after the government extended its lead.
The opposition leader will be in Adelaide courting voters, while Mr Albanese is expected to spruik Labor's policies in Melbourne.
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