The discovery of the dolls on Shein's website by France's consumer authority on Saturday fuelled an outcry.
Shein said it had sanctioned the sellers and implemented a full ban on sex dolls.
"On the Prime Minister's instructions, the government is initiating proceedings to suspend Shein for as long as necessary for the platform to demonstrate to the authorities that all of its content is finally in compliance with our laws and regulations," the finance ministry said in a statement.
Shein said it was committed to working with French authorities to address their concerns.
It said it independently decided to temporarily suspend its marketplace in France to "review and strengthen" how third-party sellers operate on the site.
Shein's website sells both its own brand clothes, for which it is best-known, and a vast array of products from third-party sellers on its marketplace.
MP Antoine Vermorel-Marques had earlier on Wednesday pointed out listings on Shein's site for weapons including brass knuckles, which are banned in France, and an axe.
"Enough is enough with the pedopornographic dolls, and now the weapons," Commerce and Small Business Minister Serge Papin said in parliament on Wednesday, before ordering the suspension of the platform.
France has experience in cracking down on online platforms - it suspended US ecommerce marketplace Wish in 2021 after its consumer watchdog found dangerous products for sale on the site, only allowing it again a year and a half later.
The government said it would do an "initial review" of its findings on Shein within 48 hours.
It was not immediately clear if the planned suspension would affect Shein's Paris store, which opened at 1pm on Wednesday.
Protesters bearing "Shame on Shein" placards had gathered outside department store BHV before the opening amid fierce criticism of its low-cost business model.
After queuing for hours, dozens of shoppers filed into the 19th-century BHV department store in the city's Marais shopping district, as riot police officers brought in to shield the store looked on.
Shein's store, which occupies 1000 square metres on the sixth floor of the BHV, has caused uproar among politicians including Paris mayor Anne Hidalgo, as well as retailers who say that Shein's business model has an unfair advantage and has eroded French high streets.
The first shoppers to enter the store browsed rails of Shein clothes including jeans for 27.99 euros ($A51) and a black fake-leather jacket for 42.49 euros, while more still waited downstairs to be allowed in.
Shein, which sends clothes from factories in China direct to consumers in 150 countries worldwide, was approached to set up a concession by Société des Grands Magasins (SGM), which is hoping the launch will attract a younger clientele to the struggling BHV and bring benefits thanks to its ecommerce expertise.
"Every day, we're told that physical stores are dying. Every day, we're being told that thousands of jobs are at stake, that the French textile industry is dying, and these same critics are not the ones offering us solutions," SGM Chairman Frederic Merlin told BFM TV.
"I believe that without innovating, the future honestly doesn't look bright."
France has been especially robust in its reaction to Shein and could ban it from advertising in the country under a planned law to rein in "ultra-fast" fashion that specifically targets platforms adding more than 1000 new products a day.
"We've been fighting this fight against Shein for two years and to see this brand set up in a historic building … that symbolises (the) French textile industry, it's an unacceptable provocation," said MP Anne-Cécile Violland, who spearheaded the fast-fashion law.
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