Labour claimed the controversial "bedroom tax" was unravelling after the Government exempted foster carers and parents of armed forces personnel from housing benefit deductions if they have spare rooms.
Iain Duncan Smith, the Work and Pensions Secretary, issued fresh guidance to local authorities about the discretionary payments available for social housing tenants. He said foster parents will be allowed to have one spare room, whether or not a child has been placed with them, if they have fostered a child or been approved to do so within the past 12 months. Members of the armed forces who live with their parents will be regarded as occupying their room while away on operations.
Officials said it was always intended that foster carers and the armed forces would not be affected, but the revised rules would "give greater certainty."
Mr Duncan Smith insisted what the Government calls a "spare room subsidy" remained "absolutely vital." He said: "The last Government saw far too many people living in accommodation which they did not fully occupy and in the meantime there were millions of people who suffered because they were on waiting lists or they live in overcrowded accommodation. It's a very good policy, the public knows it's a good policy."
Labour accused ministers of treating a symptom rather than the cause of the problem - a deeply flawed policy. "David Cameron's bedroom tax has descended into total chaos," said Liam Byrne, the shadow Work and Pensions Secretary. "The announcement doesn't bring forward one extra penny for victims of this wretched tax. Ministers have said nothing to guarantee that disabled people will be protected."
David Orr, chief executive of the National Housing Federation, said the changes amounted to "an admission that the bedroom tax is ill-thought through and incompetent". He added: "The bedroom tax is still an unfair and perverse tax which will hit hundreds of thousands of other vulnerable people living in social housing around the country."
George Osborne, the Chancellor, announced that a government-wide spending review, in which he is seeking £10bn of cuts in 2015-16, will be unveiled on June 26.
Labour failed in an attempt to divide the two Coalition parties when it forced a Commons vote on bringing in a mansion tax for homes worth more than £2m. This has been Liberal Democrat policy for five years and Labour has recently adopted it. The Conservatives oppose the idea. Lib Dem MPs voted against the Labour motion, which was defeated by 304 votes to 241. A government amendment, admitting the differences between the two coalition parties, but attacking Labour's record, was passed by 301 votes to 246.
Chris Leslie, a Labour Treasury spokesman, said: "The Lib Dems have not only failed to support a straightforward motion calling for their flagship policy of a mansion tax, they actually voted against it. Instead they voted for David Cameron's amendment which neither called for a mansion tax nor did anything to help secure one."
But Don Foster, the Lib Dem Communities Minister, said: "Both parties in the coalition have been open about our disagreement. But the Opposition's attempt to drive a wedge between us on this matter is, frankly, infantile.
"However much Lib Dems want a mansion tax, we know that the country's economic future would be in severe jeopardy if the Coalition fell apart on this issue. The country's future is far too important for us to engage in the Opposition's petty political games."