Plans for constitutional reform have been thrown into confusion after the House of Lords voted to keep the historic post of lord chancellor.
Lord Falconer drew up the government's constitutional reform
Peers defeated the government, backing a Conservative amendment to the Constitutional Reform Bill by 240 votes to 208 votes, a majority of 32.
Ministers must now decide whether to try to reverse the vote in the Commons.
The lord chancellor is the country's senior judge, a government minister and speaker of the House of Lords.
The government thinks his many jobs should be divided between a cabinet minister for the constitution, a more powerful lord chief justice and speaker in the house of lords.
But the Tories believe only the lord chancellor's high office and legal expertise can defend the rule of law and judicial independence against government interference.
Before the vote the Lord Chancellor, Lord Falconer, said: "The time has come to accept this fundamental change".
But an alliance of Tories and crossbenchers backed a move to halt the government plans, which they say will threaten judicial independence.
Responding to the claims, Labour's Lord Brennan, former chairman of the Bar Council, said the reforms as a whole strengthened judicial independence.
He said the functions of the lord chancellor would be discharged equally well by a government minister.
During the debate, former Tory minister Lord Howe said the abolition of the post "could be almost compared with the events of September 11".
Lord Howe has called the reform plans 'constitutional vandalism'
He described it as the "cornerstone of the constitution".
Tory former minister Earl Ferrers said the government was "going around rather like Boadicea in her chariot chopping off everything that they can, particularly in your Lordships' House."
Lord Goodhart, for the Liberal Democrats, proposed the alternative name of secretary of state for justice.
"We do not think the retention of an outdated title will assist in the protection of judicial independence."
Former law lord Lord Lloyd said the prime minister should be free to appoint whoever he wanted to run the courts.
But he warned that the task of defending judicial independence should not be given to "a politician on his way up the greasy pole".
The changes were announced as part of last year's Cabinet reshuffle, but the government was thwarted by the Lords when peers voted to send the bill to a select committee.
Speaking after the vote a Constitutional Affairs Department spokesman accused peers of "politicking" and said the house had taken a very serious step.
"It is right that the elected House of Commons now considers the abolition of the lord chancellor," the spokesman added.
Shadow constitutional affairs secretary Alan Duncan said: "This is a stunning setback for Tony Blair who launched this cockeyed plan without even telling his
"It also shatters the personal authority of Lord Falconer."
But Lord Falconer disagreed and played down the significance of the setback.
He told BBC's Newsnight the peers were agreed on the substance of the reforms and it was only the title of the future post that was a source of disagreement.
He said: "The issue was about what he should be called."