The 39-year-old Butt, who had made a successful return to cricket in 2016 after serving a five-year ban for spot-fixing, was on Friday named along with former teammates Kamran Akmal and Rao Iftikhar Anjum as consultant members to the recently-appointed chief selector, Riaz.
A statement issued by the Pakistan Cricket Board said, "Chief selector Wahab Riaz has opted to reverse his decision to induct Salman Butt as a consultant member to the selection committee. The decision to appoint Salman Butt was under consideration and after a thorough review, it has been decided he will not be appointed as a consultant member."
The statement added that any additional members on the selection committee consultancy panel will be announced in due course.
"The authority of choosing a consultant member, whose role relates to providing recommendations and input to the selection committee, rests solely with the chief selector. Any additional members for the selection committee consultancy panel will be announced in due course," said the statement.
The Pakistan team is currently in Australia to play a three-Test series beginning December 14 at Perth.
Following the conclusion of the series, Pakistan will tour New Zealand for five T20Is beginning January 12.
Butt was suspended for five years for his role in spot-fixing during the Pakistan versus England Test in August, 2010.
After returning to cricket in 2016, Butt enjoyed a lot of success as a batter and captain in domestic competitions but was never considered for the national team again even though his partner in crime, Muhammad Amir was fast tracked back into the Pakistan side in 2016 by the board.
Butt, a former opener, was last month hired for commentary assignments by the PCB for domestic competitions and is currently busy in the National T20 Championship.
Butt, Amir and Muhammad Asif were all found guilty of spot-fixing by the national crime agency in the United Kingdom and also served time in jail and the International Cricket Council imposed the bans on them.
Butt, under whose captaincy Pakistan won a Test against Australia at Headingley and one against England at the Oval in 2010, has always complained of being treated unjustly while admitting his remorse over his actions.
A few years back, then head coach Waqar Younis had recommended his name for a comeback to the national team, but former captain Shahid Afridi refused to let him return in the team.