MPs have voted by a 56-majority in favour of plans to cap annual rises in certain benefits at 1% for the next three years.
The government wants most working-age benefits and some tax credits to be up-rated by 1% from April 2013, rather than the 2.2% CPI rate of inflation.
The Commons approved the plans by 324 to 268, during second reading of the Welfare Benefits Up-rating Bill on 8 January 2013, despite Labour opposition.
A separate Labour amendment to block the bill was rejected by 328 to 262 - a government majority of 66.
The opposition argued that the cap on rises in benefits would hit working families hardest.
But the government insisted it was a matter of "fairness" and essential to cutting the deficit.
Sarah Teather, a former Lib Dem minister, voted against the government, unhappy that the argument had become about "strivers" versus "shirkers".
"A fissure already exists between the working and non-working poor. Hammering on that fault line with the language of shirkers and strivers will have long-term impacts on public attitudes, on attitudes of one neighbour against another.
"It will make society less generous, less sympathetic, less able to co-operate," she said.
Another Liberal Democrat, David Ward, indicated he would oppose the legislation, on the grounds that "it is not fair".
But Conservative Jessica Lee, Erewash MP, said she believed the measures were "proportionate and necessary".
Her party colleague, Kris Hopkins, agreed, commenting that the 1% increase was "admirable, bearing in mind the crisis the last government left".
The MP for Keighley argued that it "cannot be right that it pays to actually live on the state".
Labour former foreign secretary David Miliband said the "rancid" bill was based on a political calculation rather than an assessment of what was affordable.
He argued: "If we limited tax relief on pension contributions to £26,000 a year, we would not need this bill."