Prosecutors representing the Federal Investigation Agency withdrew the review petition on the orders of a High Court bench comprising Justices Sheikh Rauf and Ijazul Hasan.
The bench observed that Kasab had been given the death sentence in India for his role in the attacks and questioned how he could be brought to Pakistan for trial.
The FIA's petition, filed last year, has held up the trial of seven Pakistani suspects charged with involvement in the Mumbai attacks by an anti-terrorism court in Rawalpindi.
The FIA had wanted the trial of Kasab and Ansari to be separated from that of the seven suspects, including Lashker-e-Taiba operations commander Zakiur Rehman Lakhvi.
After the anti-terrorism court rejected the FIA's request to declare Kasab and Ansari as proclaimed offenders, the agency had approached the Lahore High Court.
The anti-terrorism court has said it could not proceed with the trial of the seven suspects till the High Court gave its verdict on the FIA's petition.
During today''s proceedings in the High Court, the FIA's lawyer again argued that the case of Kasab and Ansari should be separated from that of the other seven accused.
The prosecution informed the High Court that the anti-terrorism court had already issued arrest warrants for Kasab and Ansari and thus they should be declared proclaimed offenders.
The High Court bench observed that if the anti-terrorism court had issued arrest warrants for the duo, it would be better if the prosecution pleaded its case there.
It then directed the FIA to withdraw its petition and take its matter to the anti-terrorism court. A member of the FIA's team of prosecutors, who did not want to be named, told PTI that the matter would be taken up with the anti-terrorism court.
The next hearing in the trial of the seven accused is scheduled for Feb 26.
Pakistani national Kasab was sentenced to death by a court in Mumbai his role in the attacks on India's financial hub that killed 166 people in Nov 2008.
Ansari, an Indian national, was acquitted by the same court but continues to be in custody in connection with other cases.