"The government's position is quite clear. Works of art will not be included in the list of assets liable for wealth taxation," Prime Minister Jean-Marc Ayrault told French radio station Europe 1.
The French parliament's Finance Committee had last week adopted an amendment, tabled by a member of the ruling Socialist Party, which would have imposed the impot sur la fortune (ISF) wealth tax on art worth 50,000 euros or more.
Artworks have been exempted from the ISF since it was created in 1982.
The measure now goes before the full parliament, as on Tuesday it begins examination of the 2013 budget, which aims to save 36.9 billion euros.
Faced with uproar from those in the art world who feared the impact it would have on the French market, Culture Minister Aurelie Filippetti strongly opposed the move, which even if voted in parliament would need government backing to become law.
And in a letter dated October 12, the bosses of seven of France's top museums and cultural institutions wrote to Filippetti warning her the amendment was a threat to their prized collections.
Bruno Racine of the French National Library, Henri Loyrette of the Louvre, Catherine Pegard of the Chateau de Versailles, Alain Seban of the Pompidou Centre, Guy Cogeval of the Orsay Museum, Stephane Martin of the Quai Branly museum and Jean-Paul Cluzel of the Grand Palais all signed the letter.
“There are reasons to fear that taxing artworks will dissuade their owners from loaning them, for fear they will be identified", they wrote.
Any such tax could also drive their owners to sell their assets abroad, leading to "the disappearance of historic collections, transmitted from generation to generation."
"The French public would be the first to suffer," they warned.
The row comes just days ahead of Paris' FIAC contemporary art fair, which brings 182 international galleries together under the vaults of the Grand Palais from October 18-21.
"If you want to nip in the bud France's rebirth as a major art market, this is the best way to go about it," FIAC director Jennifer Flay warned last week.
Top French art gallery owner Emmanuel Perrotin also said. "Paris would become seriously less attractive. And to the rest of the world, we'd look as if we were crazy."
Jerome Clement, head of the Piasa auction house, called the measure "totally populist and inapplicable since there is no way to technically evaluate the worth of an artwork."
"It will encourage fraud, and artworks will leave the country," he predicted.
The amendment was intended by its backers to be a signal that wealthier citizens are shouldering their share of the burden, as France braces for the impact of the upcoming austerity budget.