A Conservative motion calling on the government not to neglect patients' interests to save money in the short term has been defeated by MPs.
Tories say NHS trusts are heading towards a £1bn deficit
Shadow health secretary Andrew Lansley said trusts had a combined deficit of £630 million last year and were heading towards £1bn this year.
But Health Secretary Patricia Hewitt said only a "relatively small minority" were in the red.
The motion was rejected by 312 votes to 231 - a majority of 81.
Mr Lansley said 90 community hospitals were at risk of closure because of the deficits, jobs were being left unfilled and some trusts were considering redundancies.
Ministers had promised there would be 7,000 extra NHS beds by 2004, he added.
Mr Lansley said: "But in the five years since the publication of the plan instead of 7,000 more hospital beds, there will be 7,000 fewer beds.
"Five years ago we had 186,000 beds in the NHS and 159,000 administrators.
"By the end of this year we will have fewer than 180,000 NHS beds, yet more than 211,000 administrators."
Ms Hewitt said: "We are taking the steps needed to reduce the overall deficit this year and ensure that at the end of next financial year the NHS is, again, in balance."
She told Mr Lansley: "You have painted a pretty lurid picture of an NHS in crisis.
"The reality is that the vast majority of NHS hospitals and other organisations are cutting waiting times, improving services, treating more patients and living within their means."
Sandra Gidley, for the Liberal Democrats, said her party would be supporting the Tory motion.
She added: "Despite record levels of investment, many local health services are lurching from crisis to crisis - a bit like a drunk on a Saturday night grabbing at anything in an attempt to stay upright or afloat."
Ms Gidley noted that 12 NHS trusts had reported a deficit of over £5m in 2003-04.
A government amendment to the Tory motion, welcoming its "record levels of investment" in the NHS, was approved without a vote.