Tory MPs Stephen Hammond and Nicky Morgan put forward a new amendment to the current bill which would force the United Kingdom to seek customs union membership if negotiators are unable to strike a free trade deal with Brussels by January 21, 2019.
British lawmakers passed the Taxation (Cross-Border Trade) Bill Monday that creates an independent customs policy for Britain after it leaves the European Union.
The British government has survived an attempt by pro-European Union conservative lawmakers to change its post-Brexit trade strategy.
"This white paper is a weak-kneed response to European Union because the prime minister is trying to fit it around what she thinks the European Union will accept".
Defeat would likely have made a confidence vote in the government inevitable.
Shadow global trade minister Bill Esterson accused the Government of a "power grab", saying that now the United Kingdom has scrutiny on trade agreements through the European Parliament and through the EU Scrutiny Committee which will be lost in this Bill.
Conservative whips, who enforce discipline in the party, threatened to call a confidence vote that could bring down the government before a crucial vote on Tuesday on customs, one lawmaker told Reuters.
In extraordinary scenes, the trade minister George Hollingbery engaged in open negotiations with the customs union rebels from the dispatch box, offering them a Lords amendment for a "customs arrangement" backstop if they backed down.
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"In law it will now be illegal for the government to negotiate any arrangement which put NI on a different footing to the rest of the United Kingdom when it comes to a customs union", he added.
But Hoey, along with Labour colleagues Frank Field, John Mann and Graham Stringer, voted it down.
Junior Defense Minister Guto Bebb, who'd supported May's initial plan, objected to the new plan and also resigned.
He was joined by Heidi Allen, Kenneth Clarke, Jonathan Djanogly, Dominic Grieve, Stephen Hammond, Phillip Lee, Nicky Morgan, Bob Neill, Antoinette Sandbach, Anna Soubry and Sarah Wollaston.
On two of Monday's votes her majority was cut to three, suggesting that the leader will struggle to get Brexit legislation through a deeply divided parliament, which could possibly threaten the approval of any Brexit deal with the EU.
"I have had the same views on the European Union since being elected and they knew these views as they were always in my election addresses".
But despite speculation suggesting a potential setback for Mrs May, the trade bill amendment was defeated by 307 votes to 301.
Mr Hollingbery, moving the Government's amendments to the Bill, said: "I recognise that members are seeking reassurance that the government will be transparent about the content of these transitioned agreements and what might need to change to deliver this continuity that we have championed for so long".