The $US2.15 billion ($A3.07 billion) expansion, flagged in July, would have increased the annual capacity of the mine from 2.4 million tonnes to 12.8 million tonnes from the fourth quarter of 2010.
"It is in response to the severe market downturn, which has clearly impacted on our iron ore demand,'' Rio Tinto spokesman Gervase Greene told AAP.
"It is important to note that we retain the option to pursue that expansion when credible signs of the market recovery are seen, but until such time, we have postponed it.''
Rio Tinto is undertaking a range of measures including, job cuts and the postponement of capital expenditure in response to the global economic downturn.
Engineering group Ausenco, which was contracted to provide services to the expansion, expects its 2009 revenue to fall by up to 3 per cent after the postponement.
Ausenco shares lost 21 cents, or 8.54 per cent to $2.25 by 11.57am (AEDT), while Rio Tinto fell $2.43 to $41.50.
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