The Andrews government has agreed not to remove dozens of squatters living in homes left vacant to make way for the now-defunct East West Link for another three more weeks.

Dozens of people, including children and pregnant women, have been living in houses in Collingwood since March, when about 50 homeless people and members of the Homeless Persons Union Victoria moved into Bendigo street in protest against what they argued was a waste of inner-city housing.

Some of the squatters fought eviction notices in the Supreme Court, securing a court-ordered injunction which has prevented Victoria Police from forcibly removing the residents this week.

The parties were due to appear before Supreme Court Justice Gregory Garde on Friday.

Outside court, Meghan Fitzgerald, a lawyer for 14 of the residents, said they had withdrawn their injunction and that the state government had agreed not to act on eviction notices for a further three weeks. She also said the state had agreed not to rely on trespass notices against the squatters, which could have seen some face criminal charges.

A spokesman for the Department of Health and Human Services confirmed it had agreed not to act, but said the state would continue to pursue legal action to reclaim possession of the properties in the Supreme Court.

“The earliest the court can hear the matter is on 19 September,” he said. “In the interim period we will continue to work with the squatters to explore alternative housing options and support services.”

Ms Fitzgerald said she did not expect the parties to return to court. She would not be drawn on whether any remaining residents would leave the vacant homes after the three-week period, saying that it was a “slightly ambitious” task to organise housing for everyone.

“But I think we have a much more cooperative situation in place as a result of the court intervention,” she said.

A court spokesman said that the matter would not proceed while the court considered orders proposed to it. The court has yet to formally endorse the proposed orders.

Spike Chiappalone from the Homeless Persons Union said the case did not resolve the broader problem of finding accommodation for about 35,000 people on the waiting list for public housing and thousands more who were homeless. He said the union still sought transparency around future plans for public housing that remained vacant.

“Until we see a plan by the state government to house these people, they’re going to end up squatting or on the street.”

Ms Fitzgerald said that this week, five of the women residents had been offered stable long-term accommodation, and seven children had been given “the opportunity of a safe home”.  Some of the residents were escaping family violence and a significant proportion were Aboriginal, and as Wurundjeri people, homeless “on their own land” she said.