Attempts to keep the UK in the European Economic Area after Brexit have been defeated in the House of Commons, amid a major Labour revolt over the issue.
MPs reversed a move to retain the UK’s EEA links after it leaves the EU next year, which had been backed by the House of Lords, by 327 votes to 126.
Jeremy Corbyn urged his MPs to abstain but 75 voted for and 15 against, while six quit their frontbench roles.
MPs overturned six further amendments inserted into key legislation by peers.
Supporters of the EEA argue it would give the UK the closest possible relationship with the EU without actually being a member, as it would offer full access to the single market.
But critics say it would require the UK to adhere to EU rules without having a say in them – and would not be in keeping with the spirit of the 2016 referendum result.
All members of the EU also belong to the EEA, alongside non-EU countries Norway, Iceland, and Liechtenstein.
In return for market access, the latter are obliged to make a financial contribution and accept the majority of EU laws. The free movement of people also applies in the zone as it does in the EU.
The government won the EEA vote comfortably after Labour abstained, although three Tory MPs, Ken Clarke, Anna Soubry and Dominic Grieve, rebelled themselves and backed the motion.
During Commons exchanges, supporters of the EEA said it would be an economic “lifeboat” for the UK after Brexit by reducing the disruption to business.
Laura Smith, the MP for Crewe and Nantwich, quit her job as shadow defence minister to vote against the EEA while Ged Killen, Tonia Antoniazzi, Anna McMorrin, Ellie Reeves and Rosie Duffield stepped down as parliamentary private secretaries to vote for it.
In a statement, Jeremy Corbyn said he understood the “difficulties” facing MPs “representing constituencies which voted strongly for Leave or Remain” on the issue of the EEA.
But he insisted Labour could not support the so-called Norway model as he did not believe it was the “right option” for the UK.
Westminster sausage machine
By political editor Laura Kuenssberg
A wiser head than me – there’s dispute over whether it was Mark Twain or Bismarck! – once remarked that laws are like sausages, if you respect them it’s best not to watch them being made.
Well the last forty eight hours in Westminster may give weight to that. Farce? Fiasco? Or maybe today in Parliament has been in the best tradition of British pantomime.
Or perhaps, this is in fact the completely predictable agony of split political parties, with leaders who struggle to command their troops, just trying to make it through after a huge vote that by its very nature, split the country in two.
“It would leave us with next to no say over rules we have to follow, it does not allow us to negotiate a new comprehensive UK-EU customs union and it fails to resolve the Irish border issue,” he said.
Earlier, Labour failed in an attempt to amend the bill with their own alternative motion to guarantee “full access” to European markets after Brexit from outside the EEA. This was defeated by 322 votes to 240.
MPs also overturned other changes made to the bill by the Lords, including a requirement for ministers to set out steps to negotiate a customs union with the EU.
The government agreed a compromise with potential Tory rebels earlier this week to work towards a “customs arrangement” with the EU. This won the support of the Commons by 325 votes to 298.
Other changes insisted upon by the Lords relating to the Charter of Fundamental Rights, principles of EU law to be retained after Brexit and EU environmental principles were also removed.
In response to the votes, Lib Dem leader Sir Vince Cable accused Labour of conspiring with the Conservatives to “wave through a hard Brexit”.
But ministers did make one significant policy concession – on refugee policy after Brexit.
They accepted a proposal by Labour MP Yvette Cooper to widen the terms under which unaccompanied child refugees can be reunited with family members living in the UK.
The government had already agreed to allow unaccompanied children to claim asylum in the UK if it was deemed to be in their “best interests”.
But, following Ms Cooper’s intervention, ministers have agreed to drop a clause stating this could only happen if their family members already in the UK were over 18 years of age.
Solicitor General Robert Buckland said ministers had listened “very carefully” to the views of MPs from different parties and would amend the bill when it returns to the Lords next week.