Fears have been raised about police powers
The government has run into the first serious challenge to its response to the terrorist attacks of 11 September and may yet be forced to make more concessions.
The defeats also reflect the views of a number of significant figures outside Westminster.
The most serious defeat was on the question of the right to judicial review for terrorist suspects who could be held without trial under the bill.
'Outrage'
The government argued that the right to appeal to a Special Immigration Appeals Tribunal (SIAC), where proceedings take place in private, is sufficient.
But peers from all sides condemned the removal of a fundamental legal right, and several Labour peers joined the attack.
The former chairman of the Commons home affairs Committee, Lord Corbett said the government was perpetrating an "outrage".
He said: "The way to defend democracy after the outrage of 11 September is not to dismantle it. It is to strengthen it".
The government also stands accused to trying to spread the net so widely that some of the sweeping new powers for the police and other authorities could be used against people accused of minor crimes.
Digging in
The Lords is likely to inflict further defeats on the government on Monday.
The most significant could be over the government's efforts to create a new offence of incitement to religious hatred.
Though the Tories do not oppose the idea, they say such a measure should not be tacked onto an anti-terrorist bill. The government is digging in for a fight.
Serious confrontation
A spokesman for the Home Secretary David Blunkett accused the government's opponents of "disembowelling" the bill and made it clear the government will try to overturn the defeats when the bill returns to the Commons next Wednesday.
With its hefty majority in the Commons it should be able to do so without too much difficulty.
The stage could then be set for a serious confrontation between the two Houses of Parliament.
'Ping-pong'
The bill has to return to the Lords and given the strength of feeling in the Upper House it is hard to imagine peers will back down swiftly.
This could lead to a "ping-pong" with the bill struck back and forth between the Lords and Commons, when the government wants the bill to become law by Christmas.
It could come down to the question of which side blinks first.
Labour are also promising to "turn up the heat" on the Tory leader Iain Duncan-Smith, questioning his stance of supporting the war on terrorism whilst letting unelected Tory peers try to wreck the Bill.
This could mark the beginning of the end of the cross-party consensus on the efforts to tackle terrorism.