The House of Lords has voted to prevent political donations made to NI parties from donors in the Irish Republic.
Lord Glentoran said direct rule for the foreseeable future was possible
The SDLP, which could be hardest hit by the move if it becomes law, has described it as "mischievous".
Peers voted on the Tory amendment to the Northern Ireland (Miscellaneous Provisions) Bill by a majority of 37.
The Bill is on matters like electoral registration, devolved policing and justice and an extension of the amnesty period for arms decommissioning.
A majority of 35 also backed extra parliament scrutiny of Northern Ireland Orders if the Assembly is not back by 24 November.
Conservative peer Lord Glentoran, who proposed the motion, said reliance on direct rule for the foreseeable future was "unfortunately a very real possibility".
"If it is not possible to form a stable government there, we must stop burying our heads in the sand," he said.
"This amendment will provide the basis for a workable procedure and allow Northern Ireland Orders to be subjected to much more effective scrutiny than before."
During the debate, government spokesman Lord Rooker said they were serious about the autumn deadline and the "fail-safe will have to be looked at seriously and urgently after that date".
After the government was defeated on the motions, he said: "We will reflect carefully and urgently. I am advised that the amendment needs some work done on it and we will look urgently at it."