The government has conceded that the decision over whether court hearings can be held in secret should be made by judges, not ministers.
Plans embodied in the Justice and Security Bill to allow ministers to order secret hearings in civil cases relating to national security were defeated in the Lords.
Minister without Portfolio Ken Clarke said peers had been "pushing at an open door", as he began second reading of the bill in the Commons on 18 December 2012.
Mr Clarke said he agreed with the Lords that a judge should have a "real and substantive discretion" about whether to order a "closed material proceeding".
He said the bill as it stood already accepted that principle but added that the government "will consider what more we can do by way of reassurance".
He said he could not give a "blanket assurance" the government would accept all the Lords amendments.
Critics fear so-called closed material proceedings (CMPs) go against the principle of open justice and could lead to miscarriages of justice.
But Mr Clarke insisted they would allow the government to fight claims when it is being sued, without jeopardising national security.
Shadow justice secretary Sadiq Khan said the legislation was "less bad" following the "truly stunning" Lords defeats.
He accused Mr Clarke of "rushing headlong" into producing the bill without proper consultation.
Mr Khan asserted that Labour would not oppose the bill at second reading but "we'll use the committee stage to seek further improvements to it".
Security vs. liberties
Senior Conservative Sir Malcolm Rifkind said the closed material proceedings proposal "is not perfect but it is a lot better than what we have at the moment".
Liberal Democrat Sir Alan Beith said the plan was "unwelcome ... but it's difficult to see an alternative".
But senior Conservative David Davis argued that the CMPs threatened centuries old liberties. He said it was "inevitable" security agencies would seek to use them once they were enshrined in law.
Plaid Cymru's Westminster leader Elfyn Llwyd also expressed concerns. He warned that the bill could "undermine the principle of natural justice".
The bill will also makes the Intelligence and Security Committee (ISC) a select committee of Parliament, with greater powers to solicit information from security services.
Labour MP Paul Goggins, a member of the ISC, said this would ensure the committee can "get the information it requires rather than simply trusting the agencies that they are giving us what we have requested".