As Australian senate rejected a legislation limiting greenhouse gas emissions, Prime Minister Kevin Rudd warned the opposition had put the future of the country at risk.
The Australian Greens say the government's 2020 emissions reduction targets - between an unconditional five per cent and a highly-conditional 25 per cent - are too timid.
The coalition and Independent senator Nick Xenophon want the government to consider an alternative scheme, based on a model they commissioned from Frontier Economics.
In the end the Senate voted 42 to 30 to reject the bills, but the government said it would resurrect the bill later this year.
The government plan would institute a tax on carbon emissions from industry starting in 2011 and limit Australia's overall pollution. The government wants to slash Australia's emissions by up to 25% compared with 2000 levels by 2020 if tough global targets are agreed at the Copenhagen summit in December.
"It is a very disappointing day indeed for Australia when the Liberal Party and the National Party cannot even become united enough to have a single united voice on climate change," Mr Rudd told Parliament.
"Let alone a voice which could act in support of this country's long-term interest on climate change, by voting for the legislation.
"Today they have chosen to do the reverse and as a consequence, have put Australia's future on climate change in grave jeopardy."
Climate change minister Penny Wong said the government would continue its campaign to push the legislation through the Senate, in a move that could trigger an early election if the opposition-controlled chamber rejects the measure a second time.
"We may lose this vote, but this issue will not go away because we ... understand Australia cannot afford climate change action to be unfinished business and we will not let it be," Wong told the Senate before the vote, which the government lost 42 votes to 30. "We will press ... on with this reform for as long as we have to," she added.
Opposition leader Malcolm Turnbull suggested again on Thursday the Government take stock and pursue legislation after climate change talks at Copenhagen in December.
He also accused Climate Change Minister Penny Wong of "pedantic bloody-mindedness" and refusing to negotiate with the Coalition.
"Only a few days ago we'd showed her a few alternatives that would make for a scheme that was greener, cheaper and smarter ... and she just dismissed it out of hand, said it was a mongrel idea," Mr Turnbull told ABC Radio today.
Senate Liberal leader Nick Minchin, who commands the largest voting bloc in the upper house chamber, said the bills should be put "in the deep freeze" until after the Copenhagen meeting and a US Senate debate on American emissions permit trading.
Among environmental groups, the Climate Institute described the vote as a "tragic postponement".
Business groups including the Australian Chamber of Commerce and Industry urged the government and opposition to quickly reach a compromise.
If the Senate rejects legislation twice in three months, Australia's constitution allows prime minister Kevin Rudd to call a snap election before his three-year term has expired.
Such an early election fought on the issue of climate change is expected to favour Rudd's center-left Labor Party, which opinion polls suggest remains far more popular than the centre-right Liberal party opposition.
Analysts expect that if the Senate knocks back the legislation again in November, Rudd could call an election early next year.