Peers began report-stage scrutiny of the Justice and Security Bill on 19 November 2012.
Peers voted to reject an amendment proposed by Lord Campbell-Savours to make the Intelligence and Security Committee (ISC) a select committee of Parliament.
Under the bill, the ISC will be given greater powers to solicit information from the security services, and it will be made a statutory committee of Parliament.
Lord Campbell-Savours, a Labour peer, argued that the change would give the committee the "absolute protection" of parliamentary privilege and enable it to command greater public confidence.
Labour backed the proposal but Home Office Minister Lord Taylor of Holbeach told the Lords it could risk the disclosure of information which might damage national security.
He said the government must have the ability to prevent publication of sensitive material by the ISC and be able to withhold the most sensitive material from the committee - although these powers were rarely used.
Lord Campbell-Savours's amendment was later rejected by 247 votes to 162, a majority of 85.
The Justice and Security Bill aims to allow sensitive material to be examined as evidence in civil proceedings without that material being made available to the general public.
Under the plans:
• closed material procedures will be extended to all civil contexts other than inquests, with the decision to withhold sensitive material taken by a minister
• the legal obligations of the courts to summarise sensitive material to interested parties when closed material procedures are used will be clarified.
Civil rights groups Amnesty, Liberty and Reprieve have criticised plans to use withheld evidence in civil cases and the power the changes will give ministers.
The bill applies to England, Wales, Scotland and Northern Ireland.