The move to give gays and lesbians equal rights in the military was defeated by 188 votes to 120, a Government majority of 68. Mr Blair, his deputy John Prescott and Labour's education spokesman, David Blunkett, did not vote.
David Clark, Labour's defence spokesman, committed the party a year ago to legalise homosexuality in the military. But Mr Blair was unhappy about the precedent set by US President Bill Clinton, who ran into a storm of criticism over his plans to do the same within weeks of his election in 1992.
Mr Blair secured shadow cabinet backing three weeks ago for a decision to give Labour MPs a free vote on the issue, which effectively allowed the gay rights move to fail, as the Government ordered its MPs to vote against it on a three-line whip.
An amendment to the Armed Forces Bill to lift the ban on homosexuals in the military was tabled by Conservative MPs Edwina Currie and Michael Brown, Labour former home affairs spokesman Gerald Kaufman and Liberal Democrat Menzies Campbell.
The amendment had substantial support among backbench Labour MPs, including Roy Hattersley, another former shadow home secretary. Most of the shadow cabinet, voted to lift the ban.
But Dr Clark's deputy defence spokesman, John Reid, led Labour support for the existing blanket ban on gays in the armed forces. This is strongly supported by service chiefs, and was endorsed last week by the all-party committee of MPs examining the bill.
Dr Reid, admitting that he "might not be representing all the people behind me", argued that relationships of a romantic nature were likely to be damaging to morale. But he suggested a Labour government would review the issue.
The Labour leadership's position was mocked by Michael Brown, the only openly gay Tory MP, who said that whichever party was in government in two or three years' time would be forced to lift the ban by the European Court of Human Rights.
Eight Conservative MPs who voted to lift the ban
Sir Andrew Bowden
Sir Nicholas Scott
Eight Labour MPs who
voted to keep the ban
Dr John Reid
Dennis TurnerReuse content