The government has been defeated as peers agreed that the Isle of Wight should remain a single parliamentary constituency.
Conservative peer and former cabinet minister Lord Fowler's amendment to the Parliamentary Voting System and Constituencies Bill was passed by 196 votes to 122, a majority of 74.
The bill cuts the number of MPs from 650 to 600 and sets a quota for the number of electors in a constituency, allowing the size of seats to differ by only 5% either way.
Two Scottish seats have been exempted, but during continued committee stage debate on 19 January 2011 Lord Fowler argued that the Isle of Wight, which faces being split into two constituencies with one linked to the mainland, should also remain intact as one seat.
The bill also provides for a referendum on changing the Westminster electoral system, scheduled to take place on 5 May 2011, when voters will be asked whether they want to adopt the alternative vote (AV) system - whereby voters rank candidates in order of preference - or stick with first-past-the-post.
Labour opposes boundary reform and plans for a smaller House of Commons, and objects to these proposals being included in the same bill as the referendum plan.
At the start of a 21-hour debate on day nine of the legislation's committee stage, the party urged the government to split the bill in two, allowing the referendum to go ahead as planned in May, leaving the House more time to scrutinise the other proposals in detail.
The Electoral Commission has warned that the referendum will have to be delayed unless the bill is passed by mid-February.
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