In return, Matlala plead guilty to corruption, fraud and money-laundering charges.
He was also required to turn state witness and testify at future trials, where 12 suspects, including police chief Gen Fannie Masemola would be in the dock. Masemola denies all charges against him.
Last week, however, a magistrate said an eight-year sentence would be a miscarriage of justice and recommended Matlala serve a 12-year term instead.
On Monday, Matlala’s legal team informed the Johannesburg Specialised Commercial Crime Court that he was pulling out of the deal.
Prosecutors will now not be able to use evidence from Matlala’s affidavit, Kganyago told reporters, external. Matlala reportedly implicated high-ranking police officials in his statement.
The initial plea deal had received some criticism prior to the magistrate’s recommendation. For instance, the Democratic Alliance (DA), the junior partner in South Africa’s governing coalition, had called the arrangement a “betrayal of accountability”.
The corruption case will return to court on 11 September, where Matlala is expected to be reinstated as suspect number one.
Matlala, who is also facing a separate murder charge that he denies, has been named by a witness at the corruption inquiry known as the Madlanga Commission as being part of a drug-trafficking cartel that has managed to penetrate the police.
He has not commented on this accusation but, giving evidence at a parallel parliamentary corruption inquiry last year, denied knowing senior police officers and politicians personally.
Matlala is due to appear at the Madlanga Commission on Wednesday. Its proceedings have gripped the nation with its high stakes revelations.
Witnesses at that inquiry, which began last September, have alleged collusion between criminal underworld figures and senior police officials.
It was set up after senior police officer Lt-Gen Nhlanhla Mkhwanazi alleged last July that organised crime groups had infiltrated the government.