The government has been heavily defeated in the Lords over plans to outlaw incitement to religious hatred.
Comedian Rowan Atkinson has been a prominent critic
Peers voted by a majority of 149 in favour of a cross-bench move to put freedom of speech safeguards into the Racial and Religious Hatred Bill.
Opponents say proposed legislation is drawn too widely and could outlaw criticisms of beliefs.
Current race hate laws covers Jews and Sikhs but ministers say other groups, such as Muslims, need protection.
'Willing to sit down'
Earlier, Home Office minister Lady Scotland said she was "thinking hard about how to bridge the gap" between opinions on the bill.
Conservative spokesman Lord Hunt said he would be willing to sit down with ministers to work out how to improve proposals.
But he still forced a vote in an attempt, he said, to test support.
Opponents of the bill argue that people can choose their religion, unlike their race, and so should not be protected against offence or criticism.
Ministers reject claims that the current bill would stop free speech.
But comedian Rowan Atkinson has called it "draconian".
Last week a group of opponents, including him and former Archbishop of Canterbury George Carey, suggested a series of amendments.
These include making sure nobody is found guilty of religious hate crimes unless it is proved they intended to stir up hatred.
Only "threatening words" should be banned by the bill, not those which are only abusive or insulting, they added.