The council announced back in February that it intended to charge shoppers to pay for parking on Sundays from November.
The news, which came at the same time as a hike in parking charges of 12 percent, was met with dismay by traders.
A petition, launched by Wiltshire's Liberal Democrats, garnered more than 5,000 signatures.
However, a government grant of £8 million facilitated a U-turn.
The funding will also pay for a 12-month programme to deliver improvements to local highway maintenance including repair of potholes, improve white lining, weed removal, kerb and pavement improvements, verges and improved road signage.
Cabinet member for highways, Bridget Wayman, said: "We have listened to our local communities and businesses, and I am pleased that we have decided to use both the funding from central Government and council funding to support our local communities and towns.
"We know that the local environment matters to our communities and this programme will make those visible improvements that we all care about.
"We have listened to feedback and acted. In recent years we have increased investment in Wiltshire's roads and this additional commitment will deliver further improvements."
Pauline Church, cabinet member for economic development said: "This re-affirms our commitment to supporting our high streets and local businesses. We need to do all we can to encourage shoppers and visitors across the county, particularly as we head into the important festive period.
"This programme of highway improvements, combined with the suspension of charging for parking on Sundays, sends a robust message that we are committed to supporting the local economy and that we listen and respond."
Councillor Ian Thorn, leader of the opposition and Lib Dem group leader on Wiltshire Council, said: "I delighted that Wiltshire Council's Cabinet have finally seen sense. These Sunday parking charges were a terrible idea.
"They would have hit our town centre residents, businesses, churches, and the work of all of us who want to keep our high streets alive."