Peers have inflicted a defeat on the Westminster Government over its widely criticised plans to overhaul the higher education sector.

The House of Lords voted by 248 to 221, majority 27, in favour of an opposition amendment to the Higher Education and Research Bill, demanding that universities remain "autonomous" bodies and free to criticise the Government.

It also specified universities "must provide an extensive range of high-quality academic subjects delivered by excellent teaching", as well as making "a contribution to society".

The defeat came during committee stage of the Bill in the Lords, an unusual period during the passage of legislation for peers to force votes.

Critics have tabled hundreds of amendments to the proposed legislation, which one Tory peer warned was "riddled with imperfections".

The Bill would open up the higher education sector to greater competition by allowing new institutions to award degrees, as long as they meet certain standards.

Proposing the amendment, which had Liberal Democrat and crossbench support, opposition spokesman Lord Stevenson of Balmacara argued the Bill "fails to understand the purposes of higher education".

He said: "I suggest without defining these important institutions there's a danger the new regulatory architecture, the new bodies and the revised research organisation will do real and permanent damage.

"The Bill before us does not define a university and we think it would be improved if it does so."

Supporting the amendment, Baroness Wolf of Dulwich, an independent crossbencher and an academic at King's College London, said the Bill "curiously, has nothing to say about universities".

She added: "We should make it clear what we believe a university is."

Liberal Democrat peer Baroness Garden of Frognal said the amendment would "provide safeguards that the core functions and values of British universities would be protected".

Independent crossbencher Baroness Brown of Cambridge, who is vice chancellor of Aston University, said the autonomy of UK universities was recognised as key to their "exceptional positions" in the European ranking tables.

She said: "Surely a broad and inclusive definition of the functions of something as important as a university in the UK is to be welcomed."

Independent crossbencher Baroness Deech said: "Our worldwide success is now under threat. The Government is risking killing off the goose that lays the golden eggs, instead of cherishing and fostering university autonomy.

"The autonomy of higher eduction is not only valuable to the universities and their surroundings, it is the hallmark of a democratic and civilised, progressive society."

Fertility expert and broadcaster Lord Winston, a Labour peer, said: "I think the basis of having the freedom of speech and the freedom of expression for the universities is something that should be written into this Bill."

But Tory former universities minister Lord Willetts argued the amendment was not the right way to safeguard the autonomy of universities.

He said it had a "paradoxical effect" in imposing "a set of obligations on universities".

Lord Willetts added: "It's formulated as a series of musts that universities have to do. And if I may say so, it reflects a view of the university which is rather narrow and traditional."

He went on: "My personal view is the way that we should be protecting universities is by putting obligations on governments and regulators to respect the autonomy of universities. Not trying to derfine universities and put obligations on them."

Backing the amendment, broadcaster Baroness Bakewell said it would be "folly" to damage the standing and reputation of UK universities.

The Labour peer, who is president of Birkbeck, part of the University of London, acknowledged the sector needed updating and amending, but stressed the need to assert "the age-old academic values that are at the centre of what universities stand for" and resist "the Government's controlling plans".

Conservative former cabinet minister Lord Waldegrave of North Hill said he had a number of concerns about the Bill.

He wanted the Government "to strengthen protections against interference with autonomy".

Broadcaster and Labour peer Lord Bragg said it was "indeed odd, even extraordinary" that universities were not mentioned in the Bill.

He pointed to the "serious reservations and opposition" raised to the Government proposals.

He said the creation of the new regulatory body, the Office for Students (OfS), was "an anathema" to freedom.

"This would impose another layer of regulation and, goodness knows, the universities in this country, like schools, like hospitals, like government itself, is all but disappearing under the tangle weed of over-regulation.

"There's a danger of strangulation by bureaucracy."

Former Labour cabinet minister Lord Smith of Finsbury, a non-affiliated peer and master of Pembroke College, Cambridge, said: "Academic freedom and autonomy is not a luxury for a university, it's part and parcel of what a university is."

Tory former MP Lord Cormack said: "We have before us a Bill that's riddled with imperfections."

However, he pointed out the amendment was "far from perfect" and argued the Government should be given the opportunity to reflect on the concerns raised.

Conservative former cabinet minister Lord Forsyth of Drumlean expressed reservations about the amendment.

He said: "What it appears to be doing is, by creating a definition, restricting the opportunities for change and variety and diversity within the university sector, so I think it's fundamentally misguided.

"Of course the elephant in the room is because we are worried about the content of the Bill and the effect that it will have upon the autonomy and the freedom of speech of the universities.

"The problem arises because of the content of the Bill."

Higher education spokesman Viscount Younger of Leckie said the Government's reforms would help universities thrive into and beyond the 21st century. Rather than being "overly regulatory" they improved on the current "piecemeal" approach.

Lord Younger said he feared the amendment imposed many more legal obligations on universities than on the Government. The Bill contained numerous provisions consistent with the need to protect institutional autonomy and academic freedom.

"I fear this amendment would, rather than protect, in fact undermine institutional autonomy by placing legal obligations on universities that some would fail to meet and all should be wary of."

While sympathising with much of the spirit behind the amendment, Lord Younger said higher education providers must continue to be free to determine how to meet the needs of students and employers.

"It shouldn't be for government to prescribe," he said. "The danger is that in seeking to set out legislation, what might otherwise seem highly desirable aspirations, we set legally binding standards."

Lord Younger warned universities might find these difficult to interpret and meet. He also warned against creating a "two-tier system" and placing barriers in the way of new universities.

Speaking outside the chamber, a Department for Education spokesman said: "We want more young people to have the opportunity to access a high-quality university education, and the measures proposed in the Higher Education and Research Bill are critical to making this possible.

"This Bill will drive up the standard of teaching at universities, deliver greater competition and choice for students, while safeguarding institutional autonomy and academic freedom.

"While today's result is disappointing, the parliamentary process is ongoing and we look forward to the next stage of the Bill process."