House of Lords defeats Employment Support Allowance cuts
Ministers had proposed reducing the Employment Support Allowance payments to those judged unfit to work but well enough to attend interviews aimed at getting them back into the jobs market.
The controversial measures were contained in the Welfare Reform and Work Bill.
But Labour, Lib Dem and independent peers joined forces to defeat the cuts by 283 votes to 198.
Ministers had argued that the cuts, which are due to come in next year, would provide an incentive for recipients to go back to work.
Crossbench peer Lord Low said: “There are things that can encourage disabled people into work but cutting their benefits is not one of them.”
Lord McKenzie, a member of Labour's work and pensions team, said: "Peers from across the House urged [welfare reform minister] Lord Freud to see sense and listen to those whose lives will be made a misery by this cut to their support.
"Sadly he didn’t but the outcome of the vote at least provides the opportunity for reflection and a further challenge in the Commons.
"Many of the people affected by the plans would welcome the chance to move towards work if the Government would only invest in tailored, personalised programmes. This is where ministers should be directing their energy rather pushing people further into poverty."
It is unclear whether the Government will try to overturn the decision when the bill returns to the Commons.
The result comes just two days after the Lords defeated government plans to change the way child poverty is measured.
It also has echoes of when the Lords defeated George Osborne's planned tax credit cuts, forcing a government U-turn.