It depends on what martial art you are training for. Which one are you doing?
Shortening the rest intervals is a great idea because it makes you get used to fighting with less energy, thus you get stronger and accustomed (sharper under more strain) to it. I would highly suggest doing this. Though, I would still suggest doing at least one practice a week using the normal intervals so that you are used to that as well. At least from a self-defense standpoint, it would be best to work down to having one long continuous round to mimic a situation where you may not have the option to rest.
You can also take the opposite approach and instead of shortening rest period, increase the round time. This will help build your endurance. Make sure to fight with the same intensity throughout as you would with the regular interval as you don't want to think you have more time to accomplish the same goal.