The canton had planned to transform the empty Löwen hotel into a centre capable of accommodating 60 asylum seekers in the village.
But on Tuesday the Uri government announced a u-turn, saying in a statement that for the moment the canton had enough places to meet the needs of its asylum seekers, since it had been assigned fewer than previously forecast.
The plan had incensed the population of Seelisberg – a village near the historic Rütli meadow where Switzerland is thought to have been founded – who felt it should not have been presented as a fait accompli, reported news agencies.
It also objected to the number of refugees planned for the centre, saying 60 was too many in a commune of just 700 people.
Feelings ran high at a public meeting in early August, attended by more than half the village, which ended early after many people walked out in protest at the plans.
During the meeting insults were thrown at Uri social affairs minister Barbara Bär.
She later made a complaint to police after it was suggested her husband was connected to an estate agency involved in the plan, reported news agencies.
The president of the commune Karl Huser-Huong said it was the manner in which the plan was presented that riled the village, reported Le Temps on Tuesday.
“We are ready to take on our responsibilities and welcome refugees. But not in these conditions. We were given a fait accompli. The canton should negotiate with the population,” he said.
The situation shows the difficulty some cantons have in meeting their obligations, conferred by the federal government, to house a share of the country's refugees.
The Swiss government allocates asylum seekers to cantons according to population size. As such, Uri is obliged to accommodate 0.5 percent, one of the lowest figures in the country.
The canton of Zurich must take 17 percent, while Bern is allocated 13.5 percent and Geneva 5.6 percent.
Some communes have been fined after they refused to house their share, including Obwerwil-Lieli in the canton of Aargau, which paid 290,000 francs instead of taking nine refugees.
The decision divided the community, which last month revised its stance and agreed to take five refugees, said Le Temps.
In its statement on Tuesday, the Uri government said it now wanted to “restore confidence” among the Seelisberg villagers and will call a round table with an external mediator to deal with the issue.
The aim is to develop “constructive discussions” to find a solution by “common consent” to the question of housing for asylum seekers should their numbers rise, it said.