The House of Lords has defeated government hopes of pushing through plans to abolish the post of lord chancellor and set up a supreme court.
Lord Falconer's historic post would be abolished under the changes
Tory and crossbench peers voted 216 to 183 to send the Constitutional Reform Bill to a special Lords select committee for extra scrutiny.
Lords leader Baroness Amos accused opponents of "political opportunism".
Tories have urged ministers not to ignore "the voice of Parliament" by using powers to force the bill through.
Baroness Amos said: "Make no mistake, tonight's events have nothing to do with constitutional principle - and everything to do with political opportunism."
Tory Lords leader Lord Strathclyde said: "Any suggestion that the views of Commons and Lords on scrutiny should now be bypassed by withdrawing this Bill and laying a new one would be an act of
He added that it would be "the mark of a government unwilling to listen to the voice of
Alan Duncan MP, the Conservatives' spokesman on constitutional affairs, told BBC News 24: "I think the House of Lords has done everyone a favour who is interested in seeing a good system of justice in this country."
But Labour backbencher Clive Soley criticised what he described as "a very deliberate attempt" by a large proportion of Tories in the Lords to wreck the government's moves for change.
Mr Soley, a member of the Constitutional Affairs Committee, said the government had to deal with the issue and should use the Parliament Act if necessary.
"I have to say we cannot go on with this system where the law lords sit in the same body that makes the laws and, at the same time, that body is still largely unrepresentative of the UK as a whole."
The BBC's political correspondent Norman Smith said the government now faced the difficult decision whether to devote political time and energy trying to achieve what were not crucial changes in terms of its central policies.
He said the government was blaming the Bill's defeat on a rebellion orchestrated by Tory leader Michael Howard as part of his "ultra combative approach".
The Bill seeks to establish a new independent commission to appoint judges.
The committee of law lords in the House of Lords currently acts as the court for final appeals in the UK.
The proposed reforms would leave that job to a new supreme court working completely separately from Parliament.
The government says that change will protect the independence of the judiciary and set clear boundaries between politicians and judges.
But former law lord Lord Lloyd, a crossbench peer, pressed for the Bill to be given further scrutiny by a Lords select committee.
He said a closer look was needed at the costs of a supreme court, adding: "It's not too late to save the office of Lord Chancellor - that's what I hope we shall do."
However, ministers indicated that they would withdraw the Bill and start again in the Commons.
The measure would then carry the backing of the Parliament Act, enabling the government to force it on to the statute book next year.
Opening the second reading debate, Lord Chancellor Lord Falconer said sending the Bill to a special committee could mean MPs never had a say on the issue.
The current system had worked well in recent years but one failure would undermine it, he said.
"We should change when we are strong, we should recognise that we can improve the system," he argued, rejecting any suggestion the new court would be "second rate".
Tory Lords Leader Lord Strathclyde, whose party backed the special committee idea, denied he was attempting to wreck the Bill.
He told BBC News 24: "The lord chancellor's post has been with us 1,400 years. All we are asking for is another 14 weeks or so to give the plans the scrutiny they deserve."
Liberal Democrat spokesman Lord Lester QC backed the principles behind the government's plans, but said the new court should first be allocated a home and enough resources.