Liberal Democrat activists have defied their party's leadership by refusing to back the controversial NHS Reform Bill at their spring conference in Gateshead.
The motion not to compel Peers to back the Health and Social Care Bill during its final stages in Parliament was passed by 314 votes to 217.
Although the vote is not binding on the Lords, it is highly embarrassing for Nick Clegg, who will face accusations that he is acting contrary to the wishes of the majority of his own party by supporting Andrew Lansley's reforms.
The vote also highlights how the party is increasingly divided over its role within the coalition, with some newspaper reports on Sunday suggesting the fractures go right to the top of the leadership.
The vote on Sunday puts the party in a form of policy limbo, coming a day after the Clegg managed to avoid a more severe crisis within his party. A move to vote on a motion calling for the Bill to be dropped entirely was defeated, but only under the quirk of the party's Alternative Vote system, used when deciding Lib Dem policy.
St Ives MP Andrew George insisted the party could not go on "deluding" itself, saying: "Substantial opposition has still been mounting in spite of these changes.
"We cannot claim the Bill has been hugely changed.
"I don't want to be apologising in years to come," he added.
Former MP Evan Harris, who was behind the successful bid to amend the motion, told conference that despite the "sincere efforts" made in the House of Lords to reform the Bill it still did not contain a block on the wholesale outsourcing of commissioning work.
"It is still nowhere near the coalition agreement," he added.
Rachel Coleman Finch, a party member from Cambridge, told conference the politics of the bill were "poisonous".
"We are screwed if we pass it and we are screwed if we don't," she said.
"We need to get away from a macho fear of u-turns."
Dr Ann Morrison, from Birmingham, argued if the party had stuck to the Coalition agreement "it would not be in this position now".
She added: "You should never turn supporting a bad Bill into a political testosterone and virility test."
On a straight vote on Saturday campaigners against the NHS shake-up won enough support yesterday to have their "kill the Bill" emergency motion debated. But, under the party's alternative vote system, they lost out to the "Shirley Williams motion" on second preferences.
The legislation was "paused" after the party's spring conference last year amid a furious backlash. It has since been amended more than 1,000 times, but many prominent health organisations remain fiercely opposed to the plans Mr Clegg insists activists will be "comforted" by the scale of the changes to the original Bill.
But he admitted his biggest lesson as leader had been the failure to convey the argument on NHS reforms.
He said: "I tell you one thing I have learnt on what could be handled better.
"I have learnt, and frankly I've learnt it the hard way over the last year and a half, you can't spring on to the public a solution or a policy if you don't spend a lot of time first explaining what the problem is.
"If we had spent more time explaining that simply having more and more people going to hospital for an increasingly long period of time is just not a sustainable way to run a good healthcare system...
"Maybe we should have spent time showing people there is a problem, because if you don't show them there is a problem first, why should people accept that there is a need for a solution?
"So I suppose that's the main lesson I've learnt."