Under the changes, existing hereditary Lords will stay in place until they die. Their seats will then be taken by `ordinary citizens' chosen at random in a system similar to jury service.
The new `people's Lords' will serve for fixed terms of one, five or fifteen years. It is expected that the first citizens to be elevated in this way will take their seats in time for the Millennium celebrations at the end of next year. There will be no change to the system of life peerages.
The committee, chaired by the Prime Minister and including Peter Mandelson, Lord Irvine and constitutional experts - was established soon after last May's Labour landslide.
Confidential minutes seen by The Independent reveal the committee examined the possibility of replacing the House of Lords with an elected second chamber, similar to the US Senate.
The idea was rejected because the committee was worried that "even a partly elected Upper House would challenge the democratic legitimacy" of the Labour dominated Commons.
There were also fears that outright abolition of the Lords would bring renewed and direct pressure on the Monarchy itself' - something which new Labour is keen to avoid.
The document details discussion of the "middle way" which Labour hopes will "preserve the stability and continuity" provided by the inherited peerage.
By allocating seats in the second chamber by lottery, appointments to the Lords will "remain beyond the political fashions of the day".
At the same time the removal of the hereditary element' will get rid of an "out of date principle which is an affront to the sensibilities of a modern inclusive and increasingly classless democracy."
According to plan the "Lottery Lords" will be chosen by computers using the electoral roll. Citizens selected to serve in the Lords will be paid a salary "commensurate with their current earnings with an additional element of compensation" for their period of office. Attendance will be mandatory, though as with jury service it will be possible to seek exemption.
Systems will be introduced to ensure that equal numbers of men and women are elevated to the peerage. The young, together with members of ethnic minorities "and the just plain average" would have an equal chance of gaining a seat in the second chamber and thus an opportunity to scrutinise legislation, suggest changes and draft new clauses and amendments.
The committee looks forward to the Lords eventually becoming "a statistically perfect and genuinely inclusive sample" of the British population. It will then function as `the ideal national focus group for test-bedding new legislative initiatives'.
But yesterday a row was brewing in Westminster over the plan, which was denounced by leading Tories - and even by senior figures close to Blair himself.
One highly placed Labour source said last night: "Tony has been spending too much time on the phone to Clinton and Murdoch. They've sold him the whole Republican agenda. The plan is nuts and it will do us a lot of damage."
Professor Pamella Benlott of London University - an influential New Labour intellectual - also urged caution. "The British constitution is fragile. Hereditary peers have centuries of in-breeding in their blood. The fact that many Lords are congenital idiots is a subtle and unique part of the constitutional settlement with which Tony will tinker at his peril."
Henry Masingbird-DeMonforte, meanwhile, who as 27th Earl of Thanet can trace his ancestors back to Harold Haffacanute, warned of a "mass uprising" of the landed gentry and their supporters "along the lines of the Countryside March... but more violent" if new Labour took his seat away.Reuse content