A rebel Commons amendment calling on Ministers to demand a real-terms cut in the EU budget was passed by 307 votes to 294 last night – a 13-vote majority.
An analysis of the division list showed 51 Conservative MPs, plus two tellers, defied the party whips to support the amendment.
Among the Conservative rebels were Mr Cameron’s old rival for the Tory leadership David Davis, MP for Haltemprice and Howden, the Father of the House Sir Peter Tapsell, veteran Eurosceptics John Redwood and Bill Cash, as well as a clutch of MPs elected for the first time in 2010.
The announcement of the result was greeted with loud cheers from the Tory benches.
Although it is not binding – simply requiring Ministers to “take note” – the result will embolden Tory Euro-sceptics, threatening to re-open bitter divisions over Europe which tore apart the party in the 1990s.
Mr Cameron believes that – with most the 27 member states net recipients from the budget – the best the UK can realistically hope for is a real-terms freeze when leaders come to set the budget for 2014-20 next month in Brussels.
Among Ministers, there was fury at the way Labour had, in their view, switched position to outflank the Government on its most vulnerable issue.
For Labour, jubilant Shadow Chancellor Ed Balls, MP for Morley and Outwood, said: “This is a humiliating defeat for David Cameron which shows how weak and out of touch he has become.”
With the opposition parties lining up behind the rebel amendment, Ministers had been braced for the worst, with No 10 aides briefing from late afternoon – more than two hours before the vote – that they were heading for defeat.
Earlier, at Prime Minister’s Questions, Mr Cameron tried to rally his troops, insisting he was taking the toughest line of any Westminster government in the budget negotiations since the UK joined the EU.
He also rounded on Ed Miliband, saying he supported a massive increase in the EU budget under the former Labour government.
The Labour leader retorted that once again the Tories were weak and divided over Europe, adding: “He can’t convince European leaders, he can’t even convince his own backbenchers. He is weak abroad, he is weak at home. It’s John Major all over again.”
Following the vote, Europe Minister David Lidington rounded angrily on Labour and urged Tory rebels to accept Mr Cameron was committed to getting the best deal possible for Britain.
But rebel ringleader Mark Reckless warned that Mr Cameron could not now afford to return from Brussels with anything less than a real terms cut.
Foreign Secretary and Richmond MP William Hague said Ministers would “hear and take notice” of what Parliament had said but indicated the Government would not change its negotiating position.
Eurozone jobless hits record high: Page 16.