The Conservatives have failed to force a review of extradition laws with the US which they argue are unfair.
They say the case of Gary McKinnon, who faces extradition on computer hacking charges, shows the law is not being used as intended to fight terrorism.
But in a Commons debate, Home Secretary Alan Johnson said Labour had simplified the rules while still protecting suspects' rights.
An opposition motion calling for the review was defeated by 54 votes.
Mr McKinnon, who suffers from Asperger's Syndrome, has admitted hacking into computer networks at Nasa and the Pentagon in 2001, actions which the US say caused huge damage at a time of heightened security.
But he maintains he was only looking for evidence of UFOs and not trying to disable military or security networks.
The Director of Public Prosecutions has refused to put Mr McKinnon on trial in the UK, a verdict that he is challenging in the High Court.
His lawyers say if there is no UK prosecution, Mr McKinnon will be extradited to the US and his health will be damaged.
Shadow home secretary Chris Grayling said the law was designed to make it easier to bring terrorist suspects to justice and people like Mr McKinnon should be tried in the UK.
Cases such as his highlighted why the law was "rightly subject to criticism" and must be reformed, he told the MPs.
"The arrangements currently in place for extradition from the UK do not meet the criteria we expect in terms of reciprocity and fairness."
"I believe such a review is vital to maintain the integrity of our extradition system, to make changes to ensure it is fair and just and to ensure that it enjoys public confidence."
He said the 2003 treaty, agreed in the aftermath of the 9/11 attacks, was being used to seek extradition for offences such as fraud and drug trafficking not originally intended.
"We were told it was a move to address the international security situation after the horrendous incidents of 2001."
"The people actually being extradited are not actually the people we were told, in the first place, it was designed for."
The Lib Dems said cases such as Mr McKinnon's "underlined the injustice" of the treaty.
"They will go on and on until that treaty is amended to put both American and British citizens on an equal footing," its home affairs spokesman Chris Huhne said.
But the home secretary rejected calls for a review of existing procedures.
Mr Johnson denied the law was not reciprocal, saying the burden of evidence required to secure someone's extradition on either side was "essentially" the same.
"The act has simplified extradition procedures while ensuring the rights of those wanted in other countries are upheld.
"We have to act in accordance with the law and the law in this case I believe provides safeguards."
The law last came under sustained political fire during the extradition of the 'Natwest Three' in 2007.
Many MPs argued three British bankers accused of fraud while working for a US unit of NatWest should be tried in the UK but ministers said they should face justice in the US because the alleged offences were committed there.