The government has insisted that it will seek to reverse three significant changes to the Welfare Reform Bill made by the House of Lords last night.
Peers amended the flagship Bill to block cuts to Employment and Support Allowance (ESA) to severely disabled people, which peers say would only save the Treasury £10m.
Work and Pensions Minister Chris Grayling insisted the changes would be overturned, saying that the government's measures would see the ESA benefits being means tested, and that disabled people with no other form of income would keep the benefits.
"We have said very clearly that we will seek to reverse the amendments in the Lords when it comes back to the Commons. We're having to take some tough decisions and I'm particularly disappointed with the Labour party," he said, suggesting Ed Miliband had agreed earlier this week on the need for tough decisions in his so-called "relaunch speech".
"I think the British public believe we need a welfare state that provides support for those who need it... but we can't provide it to everyone," Grayling added.
Downing Street backed Grayling today, saying they may use financial privilege to challenge the amendments. "It's about the authority of the Commons over issues that relate to money," said a Number 10 spokesperson.
Crossbench peer Baroness Meacher, who tabled one of the three amendments, said taking ESA away from severely disabled young people "crossed the line of British decency."
The amendments were backed by the non-political crossbench peers, who include former judges and police officers. Liberal Democrat peers defied the coalition whip and failed to support the government, causing it to lose the three votes by significant majorities.
"We were voting on issues where very seriously disabled people were going to be deprived benefits," Baroness Meacher told the Today programme on BBC Radio 4. "Very severely disabled children coming to adulthood - who will be disabled all their lives and will never have the chance to earn.... these people will have that benefit withdrawn.
"These very non-political crossbenchers felt it was over the line."
Shadow welfare minister Lord McKenzie attacked the government's proposal as "fundamentally unfair" and called for a limit to be reached after "an evidence-based process" and not chosen as an "an arbitrary figure".
On Wednesday night peers voted by 260 to 216 to retain automatic eligibility to ESA for young disable people who are unable to work.
The Lords also voted by 234 to 186 to impose a two year time limit for ESA claimants, instead of the government's proposed 12 months, and by 222 to 166 to exempt cancer patients from the limit.
The three defeats are a major blow to the government, and to Lord Freud, who was charged with piloting the bill through the Lords.
The government is attempting to remove the "youth provision" from ESA, which allows young people to receive the benefit even if they have not contributed to National Insurance due to disability or illness.
The changes would limit the time anyone can receive ESA without means-testing to 12 months.
Opponents to the plan argue that disabled people who are not able to work would lose access to ESA.
The Macmillan cancer charity has said that 7,000 people could lose £94 a week if the plans go through.
Mike Hobday, Director of Policy and Research at Macmillan Cancer Support, said Lords had voted for "compassion and common-sense."
“The Lords have stood up for cancer patients so they are not penalised simply because they have not recovered quickly enough from treatment. This vote could now signal a dramatic improvement for thousands of cancer patients who would no longer have a time limit on recovery to get back to work following their illness.
Labour MPs supported an amendment to the bill by Lord Patel, the former president of the Royal College of Obstetricians, which would increase the limit on means-testing to two years.
Shadow welfare minister Lord McKenzie attacked the government's proposal as "fundamentally unfair" and called for a limit to be reached after "an evidence-based process" and not chosen as an "an arbitrary figure".
But Welfare Reform Minister Lord Freud said the effect of increasing the time limit from one to two years would be £1.6 billion over five years.
He said the proposal to time-limit contributory ESA only applied to people in the "work-related activity group" and not those in the "support group" who were deemed incapable of work.
"Those in the support group and those claiming income-related ESA are unaffected by these proposals," he said.
"We will always provide a safety net for those with limited income and people will still be able to claim income-related ESA."
A spokesman for the Department for Work and Pensions said: "Our plans are about returning the welfare state to its original purpose of supporting those with the most need. This means ensuring that taxpayers' money is spent on those who are too sick or disabled to work and those with the least money.
"ESA is for people who could be expected to get back into work and was never intended to be a long term benefit.
"The time-limit of one year strikes the best balance between recognising that some people need extra help to enter the workplace and that the taxpayer cannot afford to support people indefinitely who could be in employment."