Scanner maker Rapiscan had been ordered to make its software function without screeners having to view naked images.
But Rapiscan was to be unable to meet a June deadline to make the updates, the US Transportation Security Administration (TSA) said.
The kit is to be replaced with scanners that show hidden objects on an avatar.
“TSA has strict requirements that all vendors must meet for security effectiveness and efficiency,” the agency said in a statement.
Separately to the privacy concerns, some health officials feared the Rapiscan 1000SP scanner, which uses low-level X-rays to generate the image viewed by screeners, might expose passengers to unsafe levels of radiation.