Ministers have won a Commons vote over their controversial ID cards plan but their majority was cut from 67 to 31.
Charles Clarke has rejected claims of a Big Brother society
Conservatives, Liberal Democrats and 20 rebel Labour MPs voted against the bill's second reading.
Earlier Home Secretary Charles Clarke told MPs ID cards would help counter, not create, a "big brother society".
The ID cards vote was the first proper test of a key policy area in the Commons since Labour was returned on a reduced majority.
The bill still faces a tough time at committee stage.
Tory David Davis said Labour's legacy would be "surveillance from cradle to grave". Lib Dems said the plans would not help fight terrorism.
'Cap on costs'
The 20 Labour rebels included four of Prime Minister Tony Blair's former ministers (Clare Short, Kate Hoey, Glenda Jackson and Mark Fisher), and two new MPs (Linda Riordan and Katy Clark).
One of the 20 rebels, Bob Marshall Andrews, predicted that ministers would eventually drop their ID proposals.
In the debate Mr Clarke responded to fears about civil liberties, saying: "There would be no compulsion on anybody to show their ID card in the street."
And he stressed that people would have the right to check data held on them.
He also tried to address fears that the cost of ID cards would prove prohibitive for citizens by offering a cap on the price - although he has yet to announce a figure.
The home secretary argued new passports including biometric data, such as iris scans, fingerprints and face scans, would cost £60-65 to produce.
He says the ID cards would cost only about £30 extra.
Earlier he branded a London School of Economics report estimating a cost per card of up to £300 "technically incompetent".
Mr Davis, for the Conservatives, said people were more likely to trust independent cost estimates than a government which had let previous computer projects overrun their budgets.
He said a future Tory government would repeal the legislation if it made it on to the statute book.
After the vote Liberal Democrat Mark Oaten said: "This identity tax will haunt Tony Blair in the same way the Poll Tax became Mrs Thatcher's legacy."
During the debate, Labour MP David Winnick said he questioned ministers' judgement in bringing the bill forward and whether they had considered all its implications.
His colleague Lynne Jones said the bill was "dumb" and should be "killed at birth".
But former Home Office minister John Denham said: "All of the pressures which have led government to talk about an ID card scheme today will be more intense in 10 years time."