Nestle Oceania has bowed to pressure from public health advocates and is removing the Health Star Rating from Milo.
Public health groups in Oceania have targeted the food giant for labelling the sugary chocolate powder with 4.5 stars, when they claim it should only score 1.5 out of a possible maximum of five stars.
Margaret Stuart, Nestle Oceania's head of corporate and external relations, told stakeholders in an email the company had decided to remove the rating from the powder in Australia and New Zealand "pending the outcome of the Government's review of the Health Star Rating system".
"In withdrawing the Health Star Rating from Milo powder, we hope to avoid further confusion about how the Health Star Rating system is designed and reduce the risk of damage to a system which is fundamentally sound."
Nestle had labelled Milo with 4.5 stars, arguing its rating reflected that Milo was designed to be consumed as three teaspoons in a cup of skim milk.
It said the rating was in line with food regulations and the requirements of the Health Star Rating system.
But public health groups say in reality, that was not how many people consumed Milo and when judged on its merits alone, it should only get 1.5 stars.
In a regular serving of Milo powder, 46 percent is sugar. However, Nestle says that much of that comes from the milk powder and malted barley ingredients.
The rating will only be removed from the Milo powder, but not other Milo products. New packaging will come into stores in the next two months.
The George Institute for Global Health praised Nestle's move.
"We welcome this step by Nestle to restore consumer trust," said Alexandra Jones, a research associate in the Food Policy Division.
"Our work suggests Health Stars work well in the vast majority of cases.
"Closing small loopholes like this will ensure that Health Stars work for consumers, not just food companies.
"It's a good first step in strengthening the system."
The Federal Government is reviewing the Health Star Rating system, with findings due mid-next year.