Peers have effectively killed off the government's plans to restrict trial by jury in complex fraud cases.
Ministers say long fraud trials put an intolerable pressure on jurors
Lords have continued a 10-year battle with ministers by voting to delay further debate on the Fraud (Trials Without a Jury) Bill for six months.
MPs agreed the plans in January - amid strong opposition.
Attorney General Lord Goldsmith has threatened to use the Parliament Act to force the bill onto the statute book in the next Parliamentary session.
Critics of the bill say the centuries-old right to trial by jury is a bedrock of the criminal justice system.
But the government says major trials put too much pressure on jurors - several high profile cases have collapsed, such as the £60m Jubilee Line case, which lasted 21 months.
They have been trying to persuade peers of the need to deal with the backlog of lengthy fraud cases, since coming to power in 1997.
The motion to delay the bill - highly unusual at this stage of a bill's passage through Parliament - was approved by 216 votes to 143.
Labour's Lord Brooke criticised the amendment, saying: "We have here a totally unelected House, which is flying in the face of what the elected people in the Commons have perceived to be the correct way forward."
Led by shadow lord chancellor Lord Kingsland, it means the Bill has effectively been seen off for the duration of this Parliament.
The bill had been approved by MPs, but peers argued that the commitment to change fraud trials was not in Labour's manifesto, therefore they are not "bound by a constitutional convention".
Moving the amendment, Lord Kingsland said: "Jury trial has been the central component in the conduct of all serious criminal trials for about the last 700 years.
"The contribution it has made to the preservation of the liberty of the individual and the legitimacy of government is quite incalculable in particular."
He was backed by Liberal Democrat peer Lord Maclennan, who questioned why the government was persisting with legislation "in the face of the very grave anxieties" of MPs, lawyers and campaigners.
Lord Goldsmith said the government would return to the legislation
And Labour's Baroness Mallalieu, QC, said the bill was fundamentally flawed, "which, in reality, sticks a knife into the main artery of our criminal justice system".
Ministers want to allow prosecution lawyers to apply to the judge for trial without jury, subject to the agreement of the Lord Chief Justice.
Lib Dem Lord Thomas, a deputy High Court judge, warned: "If this (Bill) goes through, it won't be long before there will be pressure to try any case that's likely to last more than six weeks or three months by a judge alone."
But Lord Goldsmith said it would apply to only "a small category of cases" adding: "This bill is not an attack on the jury system and, however constantly that proposition is repeated, it doesn't make it true.
"It is ultimately about justice, about ensuring that those who are responsible for fraud on the grander scale can be brought to account. We want the sharks to be caught and not just the minnows."
He reiterated the government's intention to force the bill through in the next Parliamentary session, using the Parliament Act.
But Lib Dem peer and practising barrister Lord Carlile of Berriew said: "By the time we reach the next session of Parliament we shall have a new prime minister, new priorities, new views and possibly new personnel in various offices."