Zimbabwe Cricket (ZC) made the shock decision on Wednesday, which meant the planned two-Test tour of the Caribbean, scheduled for April and May, will now not take place. They are still expected to fulfil their One-day commitments.
It is the second time in two years that Zimbabwe Cricket, split by ongoing claims of racism, corruption and player strikes, has been suspended from Tests.
A similar decision was taken in 2004 as results and performances on the field became increasingly humiliating.
But the ICC welcomed the decision as well as the pledge to investigate financial allegations.
"Zimbabwe Cricket has taken a sensible step in withdrawing from its Test cricket commitments for the coming year," ICC president Ehsan Mani said Thursday.
"The Zimbabwe team has demonstrated in recent series that it is not in a position to be competitive in Test cricket and its decision to withdraw from its commitments over the next 12 months helps protect the integrity of the international game.
"During this period we will support Zimbabwe Cricket by encouraging other members to host and undertake tours that expose Zimbabwe's elite cricketers to the longer form of the game.
"We will closely monitor the performance and progress of the team and towards the end of the year we will work with Zimbabwe Cricket to determine the most appropriate course of action."
Mani also supported the Interim Committee's decisions to investigate allegations of financial mismanagement and involve a players' representative in its Technical and Player Welfare Committee.
"We welcome the Interim Committee's decision to commission an independent investigation into allegations of financial mismanagement," said Mani.
"The inclusion of a representative nominated by the Zimbabwe Professional Cricketers' Association in the decision-making processes of the board is also a positive step towards ensuring that the views of the players are taken into account."
It had been expected that Wednesday's meeting in Harare would have named a new skipper for the team after the resignation, and retirement from international cricket, of Tatenda Taibu with Andy Blignaut tipped a favourite to take over.
But the more dramatic decision to pull out of Tests until 2007 was taken instead and came just 11 days after 37 players called off a planned strike.
They gave the ZC's new interim board three weeks to find a solution to an impasse over a long running dispute over pay and conditions.
One of the immediate effects of the Zimbabwe decision was to raise the possibility of India and Pakistan firming up plans for a lucrative One-day series later this year.
The Asian rivals hope to rope in world champions Australia for a tri-series in September ahead of the International Cricket Council's Champions Trophy in India in October-November.
The tri-series, which will be held in India or Pakistan, will replace Zimbabwe's scheduled tour of Pakistan in September.
"We now have the option of going ahead with the tri-series," Pakistan Cricket Board (PCB) chairman Shaharyar Khan told AFP on Thursday.
"When we discussed it with Indian officials earlier this month, the only hurdle was that Zimbabwe was due to tour Pakistan in September.
"But now that Zimbabwe have themselves withdrawn their Test status, that hurdle has gone."
Senior Indian cricket official Raj Singh Dungarpur said he hoped Zimbabwe will be stronger when it returns to the world stage.
"It is always sad to lose a Test nation but there was a lot of turmoil in their cricket," Dungarpur, the manager of the touring Indian team in Pakistan, told AFP.
"Zimbabwe should now concentrate on improving their standard by playing against non-Test nations like Kenya and return next year a competitive side."
Zimbabwe's decision to suspend its Test status was greeted with sadness in Sri Lanka.
Thilanga Sumathipala, the former President of Sri Lanka Cricket and Asian Cricket Council, said: "It's a sad day for cricket. Zimbabwe is a country with great cricket tradition.
"They co-hosted the World Cup in 2003 along with South Africa and Kenya and have been a great friend for Sri Lanka. I am sad that politics is taking priority with both the administration and the government and as a result cricket suffers."