The move, which will be seen as a blow to party modernisers, comes as a powerful alliance of trade union leaders threatened to wreck proposals from John Smith, to establish the principle of one-member one-vote in the selection of Labour candidates and the election of the party leader.
With Mr Smith due to respond next month to Labour's Plant commission on electoral reform, a Labour commitment to a Royal Commission is now seen as a compromise likely to satisfy both opponents and proponents of electoral reform. Professor Plant's recommendation for a supplementary vote system has been opposed by some leading Labour reformers but Mr Smith, who is cautious about change, may initially opt to consult on it.
The Parliamentary Labour Party last week postponed its discussions of electoral reform, debating the Bosnian crisis instead, but advocates of proportional representation concede that the mixed reaction to Plant and events in Italy have reduced the electoral reform bandwagon.
Opponents of PR, including the deputy leader, Margaret Beckett, have fought a tough battle both inside and outside the Plant commission.
Critics of a referendum, which was earlier floated as an option likely to be supported by Mr Smith, argue that it would inevitably be turned into a plebiscite on the performance of a Labour Government which would, by then, be about a year into office. A neutral Royal Commission, which would adjudicate on electoral systems, would be at least a necessary precursor to any referendum, they argue.
Meanwhile, two of of the largest unions, the Transport and General Workers, and the GMB general union are lining up to to oppose Mr Smith's reforms of party democracy. Mr Smith's speech at last week's Scottish Trades Union Congress, which stressed his commitment to the principle of one-member one- vote in the selection of Labour candidates, was publicly rebuffed by Jack Adams, deputy general secretary of the transport union. Mr Smith's backers admit that the prospect of his proposals getting through Labour's annual conference hang in the balance.
A number of key, medium-sized unions, such as the National Union of Public Employees, the MSF (Manufacturing, Science, Finance), and the Union of Shop, Distributive and Allied Workers, could determine the fate of one-member one-vote. John Edmonds, GMB general secretary GMB, is said to hope a common position of opposition is decided by the Labour-affiliated unions, possibly at a meeting soon.
The GMB leadership had supported a hybrid 'registered supporters' scheme - which gave the unions a greater say over candidate selection - also backing selection of the party leader by Labour MPs. But with this scheme now looking unlikely to win favour, the GMB feels that it would be deprived even of limited and indirect influence in the choice of leader under one-member one-vote.
Mr Smith is said to be determined to take his reforms to party conference this year, even if he risks defeat. His supporters argue that leaders of the Transport Union and the GMB, both of which hosted 'modernisers' public events linked to the election of President Bill Clinton, now risk casting themselves as dinosaurs.
Gordon Brown, the Shadow Chancellor, yesterday argued that 'despite all their boasts and complacency, the Government know very well that building the underlying strength of the economy - through high investment in skills and industry - is a task still be to tackled'.