Peers voted by 246 votes to 230, majority 16, against plans to cut payments to families with disabled children.
It is the seventh defeat peers have inflicted on the Welfare Reform Bill, which is set to clear the Upper House tonight.
The most prominent showdowns came over the Government's £26,000-a-year benefits cap and plans to charge parents to access the Child Support Agency.
And today peers backed a third reading amendment put forward by independent crossbench peer Baroness Meacher to limit cuts to top-up payments made to the parents of disabled children.
The Government wants to introduce a slight increase to the weekly rate for the most disabled children, taking it to £77, while halving the lower rate to £27.
Ministers argue the money saved will be spent on providing additional support to the most disabled adults.
But Lady Meacher said the Government's plans would mean families with a child on the lower rate losing £1,400 a year.
Her successful amendment specifies that the lower rate must be at least two-thirds of the higher rate.
She said the Government aimed for the proposals to be "revenue neutral" and told peers: "The proposition here is that ministers revisit the relationship between the new levels of disability addition for children and allocate resources to adults when new money allows."
She warned that there would be a "cliff edge" between the two levels of the benefit and said there were children who were "very severely disabled" who would not qualify for the higher amount.
"One hundred thousand or so children affected by this loss of benefit are very likely to live in poverty and recent research by the Children's Society shows that once the additional costs of disability are accounted for, four in every 10 disabled are actually living in poverty, so a loss of some income really does matter."
Labour's Baroness Wilkins said the Government had argued it was working within a fixed financial envelope and could not retain the rates for children if it was going to increase the rates for adults.
But she described the situation as "robbing poor Peter to pay poor Paul".
And Labour's Lord Peston said the Government's plans were "unethical" and said welfare reform minister Lord Freud "should be simply ashamed of himself".
Tory Baroness Browning also called for the Government to rethink the issue.
She said: "What do we mean by disability lite, because that is what we are really talking about? It might be presumed it is like comparing a light head cold to a really nasty bout of flu, but it is not."
And she highlighted the effect on the children who will "lose this huge sum of money".
Referring to people on the autistic spectrum, she said: "If you consider them as being disabled lite in childhood a huge proportion of them will be the big bills to the public purse later on in adolescence and adulthood."
But Liberal Democrat Lord German said the relationship between the two rates should not be "set in aspic" in legislation as if further changes were needed in the future it would create difficulties.
For the Opposition, Lord McKenzie of Luton backed the amendment as a "clear marker on the issue of proportionality" and warned against the "downgrading" of the needs of disabled children.
Lord Freud denied the issue was about "deficit reduction", insisting: "Every single penny of the monies are being recycled to increase support for both severely disabled children and severely disabled adults.
"None of the money we are talking about here is going to the Treasury."
Lord Freud said the aim was to "smooth the cliff edge" of support for disabled youngsters moving into adulthood and urged peers to look at the overall impact of the introduction of universal credit.
Even though a family might get a little less on one component, he said, it did not mean they would get less overall.
Contrary to some estimates put forward by peers the impact of universal credit was to make families much better off.
"We are managing to put £4 billion a year into the pockets of the poorest people through universal credit."
Under the reforms the number of disabled children living in "relative poverty will be negligible".
Lord Freud said concern seemed to boil down to "discomfort" over the dividing line between the definition of severely disabled and disabled.
Urging peers to not press the amendment to a vote, Lord Freud said they had sent a "strong message" to ministers and offered to review this issue.
But Lady Meacher said thousands of families with disabled children were desperately worried and she owed it to them to force a vote.
PA
Comments