West Midlands MP Tom Watson is one of four Labour MPs to rebel against plans which would see the amount of fees charged by libel lawyers dramatically reduced.
Justice Secretary Jack Straw said he hoped to push through the legislation before the General Election and said “a lot of misinformation” may have led to a House of Commons committee voting down the order that would reduce the fees charged by “no-win no-fee” lawyers in defamation cases from 100 per cent to ten per cent.
Four Labour MPs joined opposition parties in voting against the order.
The MPs - including Tom Watson, a close ally of Gordon Brown - argued the move could deny access to justice to people of modest means who felt they had been libelled but may be unable to find lawyers willing to take on their case.
Campaigners for reform are concerned the issue may now be kicked into the long grass as the dissolution of Parliament approaches.
But Mr Straw said he remained “hopeful” of securing the reform before the general election.
The Conditional Fee Agreements (Amendment) Order is contained in a statutory instrument - which can pass through Parliament without a vote in the chamber of either house, and is often nodded through by committee.
But four Labour MPs joined three Conservatives and two Liberal Democrats on the First Delegated Legislation Committee to vote it down.
Despite the setback, Mr Straw said the order would go to the chamber of the Commons on Tuesday.
He said: “It’s on the order paper for next Tuesday.
“I am hopeful, I have got to talk to our whips and the opposition whips.
“I think there was quite a lot of misinformation about it and what they were arguing is if the maximum bonuses from winning a defamation action was cut from 100 per cent to ten per cent, defamation lawyers would refuse to act.
“The 10 per cent figure was not plucked out of thin air, it was done on the basis of some quite sophisticated calculations.
“What I am saying is, whether it’s 100 per cent or ten per cent does not make that much difference to the finances of the very big national and international media chains, but what it affects is local papers.”
West Bromwich East MP Mr Watson, who voted down the reform, said more consultation was needed with the legal profession: “I have consistently supported reforms of the libel system. It is right we drive costs of cases down, but this proposal would deny access to many thousands of people.”
Chris Mullin, who also voted against the order, warned: “The impact would be that lawyers wouldn’t touch difficult cases any more.
“Nobody was suggesting that it should be 100 per cent. I think people want to see a happy medium.”