Many trade unions wanted to see the opt-out ended
The UK's opt-out from the European Working Time Directive will remain in place after attempts by the European Parliament to phase it out failed.
The opt-out enables UK workers to work more than 48 hours a week. Euro MPs wanted it phased out over three years.
But talks between MEPs, member states and the European Commission failed to reach agreement on how to proceed.
Business Secretary Lord Mandelson said he was "relieved we have been able to resist its removal".
The BBC's Europe correspondent Jonny Dymond said it was unclear what would happen next as a series of legal judgements against the opt-out meant the working time directive still needed to be amended.
The UK has strenuously defended the opt-out, which 14 other member states are signed up to, for many years.
It argues that workers should be able to choose how many hours they work and flexibility in the workplace boosts the economy.
However, unions say the UK has the longest working hours of any country in Europe, leading to more workplace accidents and hindering rather than improving productivity.
Phasing in the changes would allow concerned employers time to adjust, unions have maintained.
MEPs voted in December to end the opt-out - designed to prevent workers from being exploited - within three years.
But the UK and other member states opposed the move and talks in Brussels aimed at finding a solution broke down after it was agreed that the differences were too great.
It will now be up to the European Commission to decide whether to put forward new legislative proposals.
Employment minister Pat McFadden said the opt-out had worked successfully for many years and ending it would have been a "bad deal" for the UK in the midst of a recession.
Unemployment has risen above two million while thousands of employees, particularly in the car industry, have had their working hours reduced in the face of weakening demand.
"Everyone has the right to basic protections surrounding the hours that they work but it is also important that they have the right to choose those hours," he said.
"The current economic climate makes it more important than ever that people continue to have the right to put more money in their pockets by working longer hours if they choose to do so."
However, a majority of Labour MEPs voted to scrap the opt-out, putting them at odds with the UK government just weeks before the European elections.
Deputy director general of the Confederation of British Industry John Cridland said: "We welcome the retention of the opt-out... it allows people to make their own decision about the hours they work. Keeping the opt-out is a victory for common sense and is good for the UK economy."
The Czech Republic, which holds the EU presidency, had tried to broker a compromise deal around keeping the opt-out but reducing the maximum working week permissible for countries from 78 hours to about 65 hours.
Its labour minister Petr Necas said MEPs were "ideologically" opposed to the opt-out and their attitude flew in the face of economic reality.
"This is what Europe needs at the time of the economic downturn," he said.
But unions said an opportunity to end the UK's "dangerous long-hours culture" had been lost.
"When many employers are moving to short-time working, the need for an opt-out of the 48-hour week is even more out of date," said TUC General Secretary Brendan Barber.
And the European Commission said it was "sorely disappointed" by the failure to reach agreement and would consult on the best way forward.
"The likely outcome is that more - not less - member states will start using the opt-out, not something I want to see happen," said Vladimir Spidla, the EU's Employment and Social Affairs Commissioner.
"And there won't even be more safeguards for workers who do use the opt-out," he added.