The Government has been defeated in the Lords after peers voted 235 to 201 (majority 34) to restrict ministers' powers to abolish quangos.
It was the coalition's second Lords defeat in seven days and the fifth in 16 Lords divisions since the general election.
The amendment to the Public Bodies Bill was tabled by Liberal Democrat QC Lord Lester of Herne Hill, but the division was called by Labour peers and crossbench QC Lord Pannick when Lord Lester tried to withdraw it.
The highly controversial Bill gives ministers wide-ranging powers to abolish, merge or modify hundreds of quasi-autonomous non-governmental organisations following the Government's recent review of such so-called "arm's-length bodies".
Lord Taylor of Holbeach, for the Government, sought to reassure critics by tabling a series of amendments to the proposed powers.
But they failed to satisfy peers, among them former lord chief justice crossbencher Lord Woolf, who accused ministers of treating some of the quangos "in a cavalier way".
The previous Government defeat was on the Identity Documents Bill last Wednesday, when peers voted by 220 to 188 (majority 32) to allow people who had bought a soon-to-be abolished ID card to claim a £30 refund.
On Friday the Government announced the creation of an additional 54 peers, 27 of them Tories and 15 Liberal Democrats, but it will be several weeks before they begin to take their Lords seats.
