Anger over plans to close 2,500 post offices sparked a Labour revolt that saw the Government's Commons majority slashed in a crunch vote.
One leading backbench critic claimed as many as 20 colleagues had backed a Tory call for the suspension of the controversial programme and many others had abstained.
The Opposition motion was defeated by only 20 votes - meaning Prime Minister Gordon Brown's working majority of 67 was cut by more than two thirds.
Rebel MP John McDonnell said: "The Government has always underestimated the strength of anger on the Labour backbenches against the privatisation and cuts in this essential public service.
"Tonight's vote is a huge embarrassment to the Government and shows that a large number of Labour MPs are even prepared to support a Tory motion to demonstrate their concern. The Government is the sole share holder in Royal Mail and could stop this closure programme in its tracks."
The Tories had urged the revolt, pointing out that 90 Labour MPs, including seven Cabinet ministers, had campaigned against proposed closures in their own constituencies.
Mr Brown had told the Commons he wanted to see good Post Office services in every part of the country but stressed the organisation was losing £500,000 a day.
At question time, he said the Tory motion did not propose extra money for the Post Office, adding: "Unfunded promises are empty and hollow promises to the people of this country."
But shadow business secretary Alan Duncan said the "astonishing" vote showed his party had won the argument.
"The Government has just squeaked home; it's astonishing that it was only a majority of 20. The power of argument has overcome the power of their whips," he said.
"The hunt will now be on for all those Labour MPs who have pretended to support their local Post Office and then done a runner when they had a chance to make a real difference."
He said the closure programme was being "rammed" through and "community is being pitted against community" in a bid to keep their branch.
Business Secretary John Hutton said it was wrong to delay such difficult decisions because there had been a drop of a fifth in post office use in just two years. The Tory proposal was a "cocktail of false hopes, flawed economics and opportunism of the highest order", he said.
He urged the Post Office to give "serious consideration" to a proposal by Essex County Council to take over and run post offices earmarked for closure in the county. But in a letter to PO Managing Director Alan Cook he stressed that any funding for such a move must come from councils' own budgets to ensure all relevant costs were covered.
Protests against the closures have included demonstrations across the country with celebrity backing as well as legal moves to keep branches open.
Tory leader David Cameron yesterday visited a post office in Hammersmith, west London, that has been earmarked for closure, while a number of celebrities, including comedienne Victoria Wood, joined a protest against the closure of a branch in Highgate, north London.
The National Federation of SubPostmasters had warned the suspension of the closure programme could spark more uncertainty.
London Mayor Ken Livingstone announced on Monday that he is mounting a legal challenge against plans to close 171 post offices in the capital.