The government has suffered a heavy defeat in the first of two votes on removing parts of its Brexit legislation that ministers have admitted will allow them to break international law.
Peers voted by 433 votes to 165, majority 268, to strip one of the controversial clauses in the UK Internal Market Bill.
The government has already vowed to reinstate them when the legislation returns to the Commons.
The bill, which has been condemned by critics both in Westminster and abroad, seeks to allow ministers to override the Withdrawal Agreement signed with the EU.
Former prime minister Sir John Major said the legislation had “damaged our reputation around the world”.
Speaking in the chamber earlier, former Tory leader Lord Howard said the UK would be setting a “lamentable example” if it breaks international law.
He said “nothing has changed” since Northern Ireland Secretary Brandon Lewis admitted the legislation breaks international law in a “very specific and limited way”.
Lord Howard, who led the party from 2003 to 2005, added: “Instead, what ministers have done, both in your Lordships’ House and elsewhere, is to seek to make the case that circumstances make it expedient to break international law.
“Isn’t that what lawbreakers always say? Isn’t that the excuse of lawbreakers everywhere? What sort of a precedent is the government setting when it admits that position?
“How can we reproach other countries – Russia, China, Iran – if their behaviour becomes reprehensible when we ourselves have such scant regard for the treaties we sign up to, when we ourselves set such a lamentable example?”
Lord Newby, leader of the Lib Dems in the Lords, said the upper chamber was “within its constitutional right” to remove the clauses.
“If we can’t take a view on a matter of deliberate law-breaking by the government we may as well pack up our bags now.”
The Archbishop of Canterbury Justin Welby expressed concerns that the legislation “fails to take into account the sensitivities and complexities of Northern Ireland and could have unintended and serious consequences for peace and reconciliation”.
He said a “primary function” of the Lords is to “defend the rule of law and to protect the balances of power and peace in our Union”.
As a result, he said the move by peers would have his “unqualified support”.
The fresh parliamentary row over the legislation is likely to again be closely watched in the US, where president-elect Joe Biden has previously warned about Northern Ireland’s Good Friday Agreement becoming a “casualty” of Brexit.
The Financial Times has reported Mr Biden will stress this point during his first call with Prime Minister Boris Johnson in the coming days.
Speaking to Sky News earlier, Environment Secretary George Eustice said the government would stand firmly behind its legislation.
Asked whether ministers would immediately reinstate any of the bill’s clauses that might be removed by the House of Lords, Mr Eustice replied: “We will.”