Lord Irvine of Lairg, the Lord Chancellor, caved in to demands for "by- elections" to replace any of the 92 hereditaries remaining in the transitional upper chamber who die before stage two of the reform process is implemented.
The so-called Weatherill deal to retain 92 hereditaries during the interim stage of reform was accepted by the Government last month.
Lord Irvine said that ministers would agree to the by-elections as long as only those hereditaries who were still working peers were allowed to vote to fill any vacancies.
The Government's concession means that more than 600 hereditary peers, who will not be taking part in the second chamber's proceedings once the House of Lords Bill becomes law, may be able to stand for election.
The Government's willingness to compromise over the issue came as a surprise and will be seen as an attempt to save the Weatherill deal and speed up the Bill's passage through Parliament.
In tabling the amendment, the Tories, led by Lord Strathclyde, sought to maximise possible embarrassment to ministers who, they claim, are hesitant to push forward with reform.
Opening the debate, Lord Strathclyde said the amendment was a "necessary safeguard" which had "logic and certainty".
But Lord Goodhart, for the Liberal Democrats, dismissed the concession as a "stitch-up between the two front benches in which we had no part and wish to have no part".
However, the Government could still face defeat over Tory plans to create a statutory appointments commission to oversee the choice of future peers nominated to what they fear will become a "Tony's cronies" chamber.
The Tories have already sought to outflank Labour by proposing either a directly elected or semi-elected upper chamber in their submissions to the Royal Commission on House of Lords reform. The commission, chaired by Lord Wakeham, is expected to report by the end of the year.
Any defeat is certain to be overturned by the Government when the Bill goes back to the Commons. However, if peers insist on the amendment they could risk a so-called constitutional ping-pong with the Commons which would delay the introduction of the legislation.
The Liberal Democrats' submission to the Wakeham commission calls for a directly elected, 261-member Senate, with no law lords or bishops, to replace the House of Lords. The Senate would have the right to question and scrutinise the actions of all ministers. It would also have the power to force the Government to hold referendums on constitutional legislation and oversee quangos and public appointments.