The measure, that would have imposed a new tax on petrol stations, was held to be an essential precondition for approval by the International Monetary Fund of a $4.5bn (pounds 2.9m) loan needed to prevent the country from defaulting on a string of debt repay-ments later this year. Indeed, before the vote the Prime Minister Sergei Stepashin warned Russia risked becoming a "world pariah" if it it failed to meet the IMF terms.
But to no avail. Arguing that the new law would lead to a host of price rises through the economy, and desperate to avoid upsetting voters before this December's parliamentary elections, a coalition stretching from the Communists to the liberal Yabloko faction rejected the measure by a two-to-one majority.
The outcome can only complicate the G-8 gathering, which even before yesterday's act of defiance by the Duma was set to be dominated by relations between Moscow and the West, and thanks to the Kosovo crisis is rockier than at any time since the end of the Cold War.
Mr Stepashin will be in Cologne today and tomorrow but the key question is whether President Boris Yeltsin will come as planned on Sunday, or signals his displeasure by remaining back in Moscow.
Either way however, and even assuming a deal on Russia's role in the Kosovo peacekeeping operation to improve the atmosphere, the Western countries will be massively uninclined to commit any more funds to Russia, given the country's political and economic instability, and the manifest failure of Mr Stepashin's weak government to push through reform.
Though the leaders will make a first assessment of reconstruction needs in the Balkans - reckoned by the EU to total $20bn to $30bn over five years - the most concrete achievement of the summit is expected to be approval of a new plan to reduce the debts of the world's poorest countries.
The deal would be based on a draft agreed last weekend by Finance Ministers of the seven western members of G-8 - the US, Britain, France, Germany, Italy, Japan and Canada - providing for some of the debt relief to be financed by the sale of around one tenth of the IMF's gold stock about 10m ounces.
But even if the scheme leads to the writing off of up to $70bn of debt development agencies say it may still not be enough to help the countries escape the "debt trap," where as much as half of their national budgets can be swallowed up by debt servicing.
The scheme is an improved version of a previous plan endorsed in 1996, but was described by a Commons committee last week as being "on the brink of failure". In all the 41 poorest countries still owe their creditors a combined $220bn.
Also in Cologne, France is to urge the establishment of a global council on food safety. Referring to recent scares, ranging from "mad cow" disease to genetically modified foods and dioxin-tainted chicken, President Chirac warned that "Our peoples are increasingly anxious...We need a solution to better guarantee the safety of Europeans and people around the world."