Ministers have been advised to drop another of their proposals to "clean up" Parliament, amid concerns about the effect on MPs' freedom to talk freely.
The government has lost a vote in the Commons on part of its plans to "clean up" Parliament in the wake of the MPs expenses scandal.
The standards bill would allow debates in Parliament now covered by privilege, to be used as evidence in court.
MPs rejected by 250 votes to 247 a Parliamentary Standards Bill clause that could allow Parliamentary debates to be used in court as evidence.
The justice committee said the clause should be dropped, amid warnings of a "chilling effect" on freedom of speech.
Senior Commons official Malcolm Jack had said it could have had a "chilling effect" on MPs' freedom of speech.
Minister Jack Straw said the government would "respect" MPs' decision.
Tory MP Gerald Howarth said the vote had been a "serious affront" to the Justice Secretary Jack Straw.
Earlier in the day, the cross-party justice committee had advised the clause be dropped and several MPs had raised concerns about it during Wednesday's debate.
The government wants the bill, which also sets up an independent body to run MPs' expenses, to be law by 21 July.
The government wants the bill, which also sets up an independent body to run MPs' expenses, to be law by 21 July.
The new Independent Parliamentary Standards Authority would oversee expenses claims and have powers to recommend fines or expulsion for MPs who break the rules.
But several MPs had argued it was being rushed through in response to the expenses crisis - when it raises important constitutional matters about the freedom of MPs to speak freely in Parliament.
MPs are debating the Parliamentary Standards Bill - which also creates three new criminal offences for MPs - for the third and final day before it goes to the House of Lords.
'Chilling effect'
Several MPs have argued it is being rushed through in response to the expenses crisis - when it raises important constitutional matters about the freedom of MPs to speak freely in Parliament.
In Wednesday's debate Labour MP Graham Allen described it as a "dog's breakfast ... caused by our fear of what the media have managed to concoct and indeed reveal about the goings-on" in the Commons.
One proposal, for a legally enforceable code of conduct for MPs, has already been dropped in the interests of "consensus", in an effort to get the bill through.
One proposal, for a legally enforceable code of conduct for MPs, has already been dropped in the interests of "consensus", in an effort to get the bill through.
On Wednesday morning the Commons justice committee issued a report suggesting the clause relating to Parliamentary privilege should also be dropped.
The committee had heard evidence from senior Commons official Malcolm Jack warning of a potentially "chilling effect" of the clause on MPs' freedom of speech - and that of witnesses giving evidence to committees.
In its report it said withdrawing the clause "would allow more measured consideration of issues of privilege than has been possible" in the tight Parliamentary timetable.
'Fair standards'
If it is not dropped, the bill is likely to be held up when it goes to the House of Lords for consideration, the committee added.
During Wednesday's debate Andrew Dismore, the Labour chairman of Parliament's human rights committee, also called for changes to the bill.
His committee warned the government on Tuesday that the Bill as it stands is incompatible with human rights laws. Mr Dismore said it should set down minimum entitlements for MPs under investigation to have the "opportunity to be heard in person".
Mr Dismore said: "If we are going to look at... having independent investigation, then we should apply to ourselves the same standards that we would expect of any other professional body to apply in the outside world be it doctors, lawyers or anybody else.
"We should not be treated any differently. Fair standards of hearing are essential."
Mr Straw urged him not to push his new clause to a vote - if ministers were prepared to look at the issues further.
He said the overall process "provides more in-built protections" for MPs than the "existing process".
