An amendment to remove the proposed legislation from the Children and Social Work Bill was supported by 245 peers to 213 who voted against - a majority of 32.
During the debate preceding the vote, Lord Ramsbotham, the cross bench peer who tabled the amendment, told the House of Lords that the mechanism for innovation set out in clauses 29 to 33 of the bill "amount to nothing less than the usurpation of the proper parliamentary process and subversion of the rule of law".
He said he had been struck by "the united opposition" to the clauses, highlighting the fact that more than 104,000 people have signed a petition by campaign group Together For Children calling for the proposed legislation to be dropped.
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