Although the offer - to the Duke of Edinburgh, the Duke of York, the Duke of Kent, the Duke of Gloucester and the Earl of Wessex - was declined, the move infuriated many Labour MPs, and could lead to a backlash when the Lords Reform Bill returns to the Commons next week to be rushed through its final stages.
"I can't believe it," said one Yorkshire Labour left-winger. "I thought we were supposed to be ending privilege but Blair is sucking up to the Tories and the Royal Family."
Another Labour MP said he was appalled. "I wanted to vote against the welfare Bill, but I'm holding back now to vote against the reform of the Lords. It stinks."
The row threatened to overshadow the announcement last night of a list of 10 hereditary peers awarded life peerages that will allow them to keep their seats in the Lords after it is reformed.
The Earl of Snowdon, former husband of Princess Margaret, headed the list, along with Lord Carrington, who resigned as Foreign Secretary from the Thatcher cabinet over the Argentine invasion of the Falklands, and Lord Cranborne, who negotiated the deal to retain 92 hereditaries until stage two of House of Lords reform behind the back of his party leader, William Hague.
Six former leaders of the Lords are being made barons in recognition of their long service, said Downing Street. They include the Earl Jellicoe, who volunteered his resignation in 1973 from the Heath government for entertaining prostitutes at the height of a call-girl scandal involving another minister, Lord Lambton.
Handing out the life peerages to the 10 hereditaries including six Tories may give lie to the Conservative claim that the Government is stuffing the Lords with "Tony's cronies", but it angered Labour MPs who support a fully elected upper chamber and are building up opposition to the way the reform is being handled.
Leading Tory sources were also embarrassed about the Tory names on Mr Blair's list. "We've checked it out and they are being rewarded because they are long serving and distinguished peers," one said. "That's all we are going to say."
The Prime Minister's office defended the move, insisting that it had made clear in a White Paper on Lords reform that life peerages would go to hereditary peers of first creation. In addition to Lord Snowdon, they are: the Tory peer Lord Aldington, the Labour lord the Earl of Longford; and the crossbencher Lord Erroll of Hale.
Three former Leaders of the Lords - Lord Belstead (who held the post from 1987 to 1990), Lord Windlesham (1973-74) and Lord Shepherd (1974- 76) - have also taken life peerages.
Hereditary peers who were not thrown a lifeline will begin subtly canvassing today for election to some of the 90 seats set aside for hereditaries. The results of the election will be announced on Friday.
"At this stage, there is quite a scramble going on because there are at least 60 hereditaries who are hard-working but unfortunately not enough spaces for all of them," one Tory hereditary peer said.
"There is quite a depressing atmosphere at the moment because so many of them will have to go, so if Lord Cranborne wants to accept a life peerage that will be welcomed, because it means that another place becomes vacant."
Fifteen office-holders in the Lords have already been elected to the seats for the hereditaries, leaving 75 up for election. Two more are non-elected and reserved for the Lords Great Chamberlain and Earl Marshal.