The special agent had been slated to testify at Mr. Khadr's war-crimes trial next month about a self-incriminating statement the prisoner gave in December 2004.
Mr. Khadr's legal team maintains the statement was coerced and wanted to question the U.S. Defence Department agent about the statement.
Lt.-Cmdr. Bill Kuebler, who is defending Mr. Khadr before a military commission, said the government is trying to cut off defence probing of his abuse by U.S. authorities.
"It's a shocking concession by the government that effectively (says) the things that Omar relates about his mistreatment in 2003 and 2004 are true, otherwise they wouldn't be seeking to side-step the issue by withdrawing this witness," Lt.-Cmdr. Kuebler said from Washington.
"It corroborates or confirms that . . . this kid was absolutely traumatized and mistreated by U.S. government authorities and now the U.S. government is trying to continue to cover that up."
Marine Maj. Jeff Groharing, who is prosecuting Mr. Khadr, confirmed the withdrawal of the witness but did not offer an explanation.