The cabinet meeting came as people continued to gather in central Beirut for demonstrations that began over a trash crisis but evolved into an outlet for deep-seated frustrations over government impotence.
After more than five hours of talks, the cabinet decided to reject a list of tenders for waste management contracts across Lebanon and refer the problem to a ministerial committee.
"Given the high prices (quoted by would-be contractors), the council of ministers has decided not to approve the tenders and is charging the ministerial committee with finding alternatives," a cabinet statement said.
For months, the 18-month-old government has been paralysed by political disagreements between its two main blocs, rendering decision-making virtually impossible.
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Large crowds carrying Lebanese flags and chanting gathered today for spontaneous protests in Riad al-Solh Square near the premier's office.
It came as Prime Minister Tammam Salam ordered the removal of a concrete blast wall at the site, which Lebanese had dubbed the "wall of shame".
The wall was erected after protests on Saturday and Sunday turned violent.
The crowds swelled today, despite the "You Stink" campaign which has behind the street protests scheduling its next official demonstration for Saturday.
At the weekend, Salam acknowledged protesters' frustrations and warned that his government risked becoming irrelevant if it could not address the public's concerns.
"We're heading towards collapse if things continue as they are," he cautioned.
But today's cabinet meeting was unable to resolve the social issue that has united protesters for a rare display of non-sectarian anger.
It was intended to discuss companies qualified to bid for new waste removal contracts.
The list had drawn fire from activists who said the firms were linked to political figures and were seeking exorbitant fees.