The party voted with the Tory-Lib Dem Coalition to introduce a limit on total welfare spending.
The SNP and 13 Labour MPs voted against the move.
Former Labour leadership contender Diane Abbott condemned both the UK Government and her own Labour leadership for "short term political positioning" with the cap, which will set the overall welfare bill at £119.5 billion in 2015/16.
The Conservatives sprung the vote on Labour in last week's Budget.
Tory sources suggested that it was a "trap" which would show, if Labour voted against, just how profligate the opposition would be if returned to office in 2015.
Labour believe that they have successfully avoided that charge, and pointed out the rebellion was smaller than originally suggested.
Shadow Chancellor Ed Balls told MPs that the cap was not a "trap, it is the right thing to do".
Earlier the Chancellor George Osborne said the move was about "building a welfare system that is fair to those who need the system and fair to people who pay for the welfare system".
But in her speech, Ms Abbott said: "This is not a game, this is about people's lives."