Hips were schedule to launch on June 1 and would have required anyone marketing a property for sale in England and Wales to provide an energy efficiency certificate (ERC), along with a title deed, sale statement and record of standard searches.
In further concessions, Ms Kelly announced sellers would, until the end of 2007, be able to market a property having merely commissioned a Hip, rather than waiting for the complete document.
The 'expiry date' for EPCs has also been extended from three months to 12 months as a temporary measure to avoid repeated renewals.
Additionally, the government will work with councils and social housing landlords to introduce EPCs on a voluntary basis for social housing.
Ms Kelly said: 'The approach we have set-out preserves the principles of HIPs and EPCs, while ensuring a transition period for the people buying and selling their property. Most importantly, it provides an opportunity to make real progress towards cutting carbon emissions from our homes.'
The communities secretary conceded there are insufficient numbers of surveyors trained and accredited to provide Energy Performance Certificates (EPC), despite original assurances.
Although 3,200 surveyors have passed the necessary qualifications and 2,500 more are in training, Ms Kelly told MPs just 520 have been properly accredited.
Professional bodies had already warned insufficient numbers of surveyors were trained to complete the ERCs, warning of a bottleneck in the property market.
The Royal Institution of Chartered Surveyors (Rics) sought a judicial review, claiming the Communities Department did not consult properly on the proposals.
Today it emerged that, in light of this review, a judge had ordered EPCs should not be launched on June 1 and be put on hold until the courts could consider Rics' application.
The government said it was not 'acceptable or practical' to launch Hips without EPCs.
Ms Kelly insisted the government remains committed to the value of Hips. Nevertheless, today's announcement marks a significant U-turn for the government.
Downing Street denied the government had 'caved in' over Hips and insisted today's announcement was a practical postponement.
The government had insisted until the 11th hour the June 1 start date would go ahead. Remarking on the government's step-down, the Conservatives remarked Ms Kelly clearly is a lady who 'is for turning'.