The Government has refused to let asylum seekers work in the UK after six months claiming it would allow people to bypass the "proper" economic migration scheme.
The Lords amendment was rejected by 291 votes to 232 with a majority of 59.
Senior Tory MPs Tim Loughton and Simon Hoare rebelled against amendment 7 of the Nationality and Borders Bill that would have made it easier for asylum seekers to work in the UK.