With more than 100 Conservative backbenchers prepared to defy the UK Government, the Prime Minister informed Nick Clegg hours before last night's vote that attempts at winning over the dissenters had failed. He told the Deputy Prime Minister a controversial vote to limit debate on the proposed reforms to 10 days was being withdrawn.
Last night, the Government won the vote to give the Lords Reform Bill its second reading in the Commons by 462 to 124, albeit now with no timetable.
Despite Mr Cameron's climbdown, one ministerial aide, Conor Burns, resigned his post in protest at the Coalition's bid to reform the second chamber.
The former Parliamentary Private Secretary to Northern Ireland Secretary Owen Paterson added that he "couldn't look myself in the eye" if he had voted for the bill.
Earlier, Mr Cameron presented a brave face, insisting on the principle of Lords reform and saying he expected "a very large majority".
Last night, a poll showed 59% of voters supported Lords reform to ensure a majority of members are elected. However, only 24% of the 2000 adults questioned by ComRes said the policy should be a Government priority, with 50% saying it should not.
As it stands, the legislation would halve the current number of peers to create 450 senators, 80% of whom would be elected, serving single 15-year terms and paid up to £45,000 a year.
Announcing the Coalition's latest U-turn, Sir George Young, Leader of the Commons, blamed Labour for siding with the Tory rebels and told MPs a new timetable would now be brought forward in the autumn.
This, he explained, would give ministers "moments for reflection" as they try to cobble together a new timetable and even rewrite key parts of the bill in the hope of winning over a number of rebels.
However, the Prime Minister's retreat will only hearten some dissenters, who may well feel they can kill off the latest attempt at Lords reform completely. It will also intensify the animosity between Conservatives and Liberal Democrats.
Senior Tory backbencher David Davis said he could "not see why it will change" in September and predicted any new timetable motion would be "defeated again".
Rebel Tory Jesse Norman branded the current bill "a dead duck". He explained: "The question is how long will the Government go on before it recognises that, and how much further will it have to go in putting the country through a lot of additional pain when the real energies of parliament and the Government should be focused on fixing the howling economic gale we are now in."
Fellow dissenter Bernard Jenkin, Tory chairman of the Commons Public Administration Committee, said: "Withdrawal of this motion amounts to a defeat and it means this bill is in very grave difficulty. It is possible to get a bill through the Commons without a timetable - but that means it will take as long as it takes."
The Essex MP even suggested the loss of the Government's timetable motion yesterday could have sparked an early General Election. He said: "When a government cannot obtain its business on the floor of the House of Commons it loses its authority. If the Government takes itself into that hole, it could find it very difficult to climb out. It could bring forward the date of the next General Election."
Earlier, the Deputy Prime Minister made clear the bill was unlikely to become law without some sort of limit on debating time. "A bill of this complexity and self-evident controversy - is unlikely to progress without it being properly timetabled in one shape or form," Mr Clegg argued.
Labour hailed the retreat a "victory for parliament".
Sadiq Khan, the Shadow Justice Secretary, said while the Opposition supported the progress of the bill, it wanted "ample time for Parliament to knock into shape what is a sub-standard set of proposals".
He added: "It's about making good an inadequate bill and that means allowing parliament the time to revise, amend and improve the bill free from the threat of debate being stifled."
The SNP's Angus MacNeil said the proposals for Lords reform was a "shambles" and underlined why the Westminster parties could "not be trusted to put democracy before partisan games when it comes to the big constitutional questions".
He added: "It is clear a yes vote for independence is the best way to ensure a modern democracy for Scotland."