Deputy Premier Dave Hancock said Thursday the cabinet passed an order in council that extends the deadline to March 31.
The Conservative government passed a law last month forcing a four-year deal on the Alberta Union of Provincial Employees if an agreement wasn't reached by Friday.
Hancock said the government extended the deadline because it is "keen" to reach a negotiated settlement with its 22,000 employees.
The deputy premier also says the government will have a new negotiating team and a new mandate when it gets back to the negotiating table, although there are no dates set yet.
AUPE president Guy Smith says the union is ready to get back to the table if the government does come with a new mandate.
"We hope that the new mandate reflects the Alberta economy and is not a further insult to our members," Smith said in a news release. "They are angry, upset and demoralized by the events that have transpired to date."Story continues below slideshow
"Our goal as always is to achieve a new agreement, an agreement that's fair to the public sector employees who deliver programs and services to Albertans but it also fair to the Alberta taxpayer," Hancock told reporters.
The legislation forces on the union a wage freeze in the first two years and one per cent hikes in each of the last two if a negotiated settlement isn't reached.
The government revoked the union's right to go to binding arbitration in this round of bargaining. It also passed a law imposing six and seven-figure fines if the union goes on strike illegally or even talks about illegal strike action.
The union is taking the province to court, arguing the laws violate charter freedoms and is unfair bargaining. This week a Court of Queen's Bench judge issued a temporary stay the legislation until Feb. 14 to give him time to consider all the arguments presented in the case.