The Lords tonight refused to back down over measures which would make the proposed referendum on changing the voting system for Westminster elections binding only if turnout was higher than 40%.
A rebellion by 27 Conservative peers and one Liberal Democrat helped set up a showdown with the Commons over the Parliamentary Voting System and Constituencies Bill.
Peers voted by 277 to 215, majority 62, in favour of former Labour minister Lord Rooker's move which would mean that the alternative vote (AV) system would not be automatically adopted in the event of a victory for the "yes" campaign if turnout in the referendum falls below the 40% threshold.
The measure was backed in the Lords by just one vote when it was first debated last week, but today's higher majority followed speeches in favour of Lord Rooker from Tories including former chancellors Lord Lawson of Blaby and Lord Lamont of Lerwick and former Cabinet minister Lord Forsyth of Drumlean.
MPs overturned the provision when the Commons debated it last night, but today's vote reinstating the threshold means the Bill will now return to the Commons.
A protracted session of parliamentary "ping pong" could now take place, with the Bill being passed between the two Houses until a final agreement is reached.
Ministers need to get the legislation on to the statute book before peers begin their February half-term recess at the end of today's business in order to give the Electoral Commission time to plan for a referendum on the coalition's preferred May 5 date.
Lord Forsyth told peers that among Tory MPs there had been 20 rebels and 25 abstentions when the Commons overturned the threshold amendment by a majority of 70 last night.
He told peers: "Many of the people who went through lobbies did so out of loyalty and they did so because they were being whipped. And they are ringing us up and saying: 'For goodness sake save us in the House of Lords'."
Advocate General for Scotland Lord Wallace of Tankerness, speaking for the Government, said that having a threshold "seems to dilute the democratic will of the people".
Along with prominent Conservatives who spoke in favour of Lord Rooker, the 27 Tory rebels also included ex-Cabinet ministers Lord Howe of Aberavon, Lord Tebbit and Lord Mawhinney. Viscount Falkland was the only Lib Dem who voted in favour of the threshold.
But there was better news for ministers when the Government won a second division by a single vote.
The narrow 242 to 241 victory came over an amendment which would have allowed the Boundary Commission extra flexibility when constructing constituencies under the Bill's measures to reduce the size of the House of Commons from 650 to 600 seats with roughly equal electorates.
Under the Government's plans in all but four cases the number of electors in any constituency can only vary by 5% from the average.
The vote today defeated a measure which would have allowed a 7.5% variation in exceptional circumstances.
Lord Rooker said that without a threshold the AV referendum would be "binding without any constraint whatsoever".
He told peers: "I'm not against reform of our constitutional arrangements, but such reform usually is thought to be sustainable if there is a degree of consensus and we have got proper debate, white papers, green papers, joint committees.
"We can have consensus about these things and test the ideas. That has not been done in the case of a binding referendum where the legislation is in place for it to be activated on whatever the result on whatever the turnout."
Lord Lawson said Deputy Prime Minister Nick Clegg had claimed the Bill was a fundamental constitutional change.
"If this House does not have a role as the watchdog of the constitution, it has no role at all," he said.
In a sign of how seriously the Government takes the passage of the Bill, Mr Clegg, who is responsible for the legislation, cancelled an official visit to South America this week to help secure its progress.
A referendum on voting reform was a major prize in the coalition agreement between Mr Clegg's Liberal Democrats and the Conservatives.
Lord Forsyth told peers: "I find it very difficult to understand why my coalition colleagues have not accepted this amendment. It has been suggested to me that this is because of the coalition agreement.
"This does not in any way affect the coalition agreement. When I have raised this with senior colleagues, they have said 'It is not in the agreement but it is what we have agreed with the Liberals'."
Peers later accepted, without a vote, the move made by MPs last night to split the Isle of Wight into two separate seats.
The proposal was a concession to the Lords, which voted during the committee stage to insist that no MP should represent a seat combining both part of the island and part of the mainland.
The current stand-off is the latest in a series of set-backs for the Bill. It was first debated in the Commons on September 6 last year but its passage through Parliament was held up amid accusations of filibustering by Labour peers which saw the legislation's committee stage in the Lords drag on for 17 days.
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