The pro-EU Conservative lawmakers want to change the trade bill to force the negotiation of a customs union if attempts to agree a friction-free trade deal with the EU fail. Their mutiny came 24 hours after Mrs May caved in to hardline Tory Eurosceptics to back an amendment which critics says effectively kills off her compromise Brexit Chequers plan.
The Government was defeated by 305 votes to 301, a majority of four, in the division over the proposal tabled by pro-Brussels former Tory minister Philip Lee.
As Theresa May's government continues to reel over its divisive plan to withdraw the United Kingdom from the European Union, the Prime Minister has rejected the idea of a second vote that would give the British people another say before the country officially hits the exits in March 2019. In both votes, Brexit-supporting Labour MPs backed the government.
Theresa May is gearing up for one of the most hard days of her tenure.
The amendment from Conservative MP Philip Lee, who resigned from the government in protest over Brexit, requires the government to seek continued United Kingdom participation in the EU medicines regulations involving the European Medicines Agency.
She said Labour was in an "even greater mess" than the Conservatives, with the 'old Trotskyists in charge.
If parliament does finish for summer earlier than expected, there will not be enough time for Tory MPs to hold a no confidence vote against the PM.
Mrs May will head to the border on Thursday and make a speech in Belfast the following day focusing on her Brexit blueprint and its impact on Northern Ireland and the border.
On Monday, May gave in to Tory hardliners by accepting four amendments to the bill, underpinned by her Brexit white paper, meant to toughen up her negotiating stance.
Would-be rebels were reportedly warned on Tuesday that opposing the government in a vote on a customs union would lead to a vote of confidence and potentially a general election.
May's government on Monday avoided a humiliating defeat in Parliament when it narrowly won another vote over her Brexit customs bill - but only after reluctantly accepting amendments put forward by Brexit hardliners. We have a Prime Minister who is in office, but not in power.
But Sinn Féin deputy leader Michelle O'Neill said the British government had "tore up" its own Brexit proposals and she called on the taoiseach to protect Ireland's interests.
Mr Hollingbery, moving the Government's amendments to the Bill, said: "I recognise that members are seeking reassurance that the government will be transparent about the content of these transitioned agreements and what might need to change to deliver this continuity that we have championed for so long".
An amendment that would stop the United Kingdom from joining the EU's Value-Added Tax regime saw 11 Conservative rebels.
The Green Party MP Caroline Lucas said the vote would strengthen calls for a second European Union referendum on the terms of the UK's Brexit deal.