The House of Lords rejected proposals that would give councils the power to require all new faith schools in their area to fill a quarter of all their places with students belonging to other religions.
Tory former Education Secretary Lord Baker of Dorking's third reading amendment to the Education and Inspections Bill was rejected by 119 to 37, a government majority of 82, after a 95 minute debate Monday night, reports The Press Association.
The amendment was modelled on an unpublished government proposal, which was then withdrawn by Education Secretary Alan Johnson after strong lobbying by the Roman Catholic Church which agreed to voluntarily meet a 25 per cent quota.
The move met with anger from Lord Baker who called it "a complete surrender by the government", and he argued that his amendment would assist community cohesion.
But Tory education spokesman Baroness Buscombe countered: "The amendment would drive a coach and horses through the principle of schools' freedom and parental choice that we have supported so strongly throughout this Bill."
She described it as "social engineering at its very worst - a quota could prevent parents from educating children according to their religion or from educating their children outside religion".
Junior education minister Lord Adonis, whose alternative proposal to give all schools in England a duty to promote "community cohesion" was approved without a vote, said this was preferable to a law that would require all new faith schools to hold back places for pupils of other religions.
The move to ensure schools promote "community cohesion" was supported by the Opposition front benches and Muslim peer Lord Ahmed.
Ofsted inspectors will instead be given the right to monitor the way all schools foster links with other educational establishments in their area.
Lord Adonis said: "We have decided that the best way and most effective way to promote community cohesion is to lay a duty to promote community cohesion on the governing bodies of all schools.
"This will extend beyond faith schools whether new or existing and will embrace all schools whatever their admissions policy which will make it far more effective."
