The move followed warnings from some Indonesian Muslims that they were prepared to wage a holy war against followers of the sect.
The National alliance for Freedom of Religion - a group of more than 60 organisations – says Monday's decree showed the government was bowing to pressure from a minority of Muslims.
"We ask the silent majority of moderate Muslims in Indonesia to speak out because now we are being held hostage by a small group of hardliners who commit violence and who want to change the ideology of our state," Siti Musdah Mulia, an activist with the alliance, told Al Jazeera.
Under the government decree, Ahmadiyah followers are prohibited from "spreading of the belief that there is another prophet with his own teachings after prophet Muhammad".
Ahmadiyah followers believe the sect's founder, Mirza Ghulam Ahmad, was the final prophet of Islam and not Muhammad.
Monday's decree stops short of banning the sect outright, but orders them to cease activities that are not in accordance with mainstream Islam.
Police have been deployed around Ahmadiyah's main compound in Jakarta amid fears that violence against the sect's estimated 200,000 followers could intensify.
Last week, a demonstration in support of religious freedom was attacked by supporters of the Islamic Defenders Front (FPI) wielding bamboo sticks – injuring a dozen people.
Despite Monday’s decree, the FPI has vowed to keep up pressure on the government to completely disband the sect.