The government have "over-played their hand" in forcing through the welfare reform bill and Labour are taking legal advice, Lords sources have told the Huffington Post UK.
Labour Lords expressed outrage over the government using financial privilege - a measure which means the Commons can push through legislation without consulting the second chamber - over controversial changes to welfare following seven Lords defeats on the matter.
The government over-turned all the Lords changes in parliament on Wednesday evening.
On Thursday morning Conservative Lords leader Lord Strathclyde said he did not think it would be useful for peers to "debate [the matter] endlessly."
Professor Rober Hazell of the UCL constitution unit told the Huffington Post UK on Thursday that the uncommon move set a potentially dangerous precedent and reduce the power of the Lords.
I don't think its significance has yet been adequately appreciated.
"The consequences could be a big tussle between the two houses. If the government and the Commons try to make such a sweeping claim for financial privilege then an awful lot of legislation potentially would come within this wider net and the House of Lords, effectively, will be wasting their time.
"Up to now there has on the whole been a narrower interpretation of financial privilege as relating to tax raising bills. That indeed is the historical origin.
"This is potentially an important extension of the doctrine which, if the Lords were simply to roll over and accept it would significantly restrict their power and their role."
The whole process could end up in a judicial review, because it is considered highly unusual for a government to introduce a Bill to Parliament with the intention of it being considered by both Houses, only for it to declare the Bill beyond the auspices of the Lords at this relative late stage in proceedings.