Peers have rejected a government attempt to override the key concession which allowed legal aid reforms through the Lords earlier this year.
The Lords voted by 201 to 191 against ministers after the government reneged on its promise to provide legal aid for those appearing before employment tribunals.
The legal aid, sentencing and punishment of offenders bill was defeated 14 times in the Lords earlier this year and only got through the upper House when the coalition made their concession on first-tier tribunals.
It subsequently proposed a system in which legal aid would only be available if the appellant appealed and the tribunal ruled an 'error of law' had been committed.
Labour's former shadow justice minister Willy Bach argued that was substantially different from the expectation that officials would make legal aid available for first-tier tribunals.
"This is a victory for parliament in holding ministers to their word," he said after last night's vote.
"What the government should now do is fulfil the undertakings given in the House of Commons at 'ping-pong' by the then lord chancellor.
"That would do something to alleviate the position of those highly vulnerable people, including many with disabilities, looking to appeal to first tier tribunals on points of social welfare law."
Liberal Democrat justice minister Tom McNally insisted the government had never promised to provide all first-tier welfare benefit appeals with legal aid.
"The government's position throughout has been that in these economic times we need to target legal aid at cases of the highest priority and where it is needed most," he said.
Yesterday tougher sentences and offences, including a mandatory jail sentence for knife crime, came into law as a result of the law passed by parliament earlier this year.