The cross-party Standards Committee had called for a six-week ban from Parliament for Owen Paterson after it was ruled that he repeatedly lobbied ministers and officials for two companies paying him more than £100,000 per year, only for the UK Government to vote on Wednesday to ignore the order.
SNP MP Pete Wishart claimed the vote showed it was “one rule for the Tory elite and another for the rest of us”.
He continued: "This entire shameful episode is yet another example of Tory stitch-ups and sleaze at the heart of this corrupt Tory government.
"Rather than upholding the rules and findings from an independent watchdog on standards, Boris Johnson's Government has rewritten the rules and abolished a committee entirely for his party's self-interest.
“The Tories want to overthrow the verdict of the independent committee and to have the matter determined by a committee with a Conservative chair and a Conservative majority. That’s natural justice Conservative-style.
“The SNP will not serve on any kangaroo court designed and determined by the Tory party in order to do away with an independent process for looking at the breach of the rules.
"From lobbying for firms, lucrative Covid contracts for friends and party donors, cash for curtains, texts for tax breaks, stuffing the House of Lords with cronies, or luxury holidays paid for by mystery donors, the Tories are rotten to the core, out of control and will get rid of all scrutiny in order to protect their own interests.”
Mr Paterson, the MP for North Shropshire who angrily denied the findings against him, could have faced recall proceedings that may have triggered a by-election if the recommended six-week suspension had been approved.
Ministers had placed Tories under a three-line whip to support the amendment tabled by former Commons leader Dame Andrea Leadsom, a senior Conservative MP said.
There were shouts of “shame” and “what have you done to this place” from opposition MPs as the House voted 250 to 232 – a majority of 18 – to approve the amendment.
Deputy Labour leader Angela Rayner accused the Tories of being “rotten to the core” after the “absolute disgrace”.
She said the party would “not be taking any part in this sham process or any corrupt committee”, with the SNP also saying it would boycott the overhaul.
As well as reviewing Mr Paterson’s case, the amendment calls for a Conservative-majority committee led by former culture secretary John Whittingdale to examine the standards system.
Parliamentary Commissioner for Standards Kathryn Stone recommended a ban from the Commons of 30 sitting days for Mr Paterson in a report approved by the Standards Committee.
Ms Stone’s investigation found he repeatedly lobbied on behalf of two companies for which he was acting as a paid consultant – Randox and Lynn’s Country Foods.
Mr Paterson claimed the investigation was unfairly conducted and argued the manner in which it was carried out had played a “major role” in his wife Rose’s suicide last year.
The Prime Minister said paid lobbying in the Commons “is wrong” and those “who are found guilty of that should apologise and pay the necessary penalties”, only to then vote for the amendment.
“The issue in this case, which involved a serious family tragedy, is whether a member of this House had a fair opportunity to make representations in this case and whether, as a matter of natural justice, our procedures in this House allow for proper appeal,” he said.
Ms Rayner, standing in for Labour leader Sir Keir Starmer during Prime Minister’s questions, accused the Conservatives of “wallowing in sleaze” and of a move showing it was “one rule for them and one rule for the rest of us”.
There was a sizeable rebellion from Conservatives who refused to follow orders to back the bid, with longest-serving MP Sir Peter Bottomley suggesting overhauling the system now would be improper.
“We chose the system we are now using,” he said.
“If we want to consider changing it, we do it in a proper way instead of considering it in the way we are now.”
Downing Street earlier urged MPs to seek “cross-party agreement on a new appeals process”, arguing the right of appeal was “sacrosanct in providing fairness and natural justice”.
The Prime Minister’s press secretary insisted “this isn’t about one individual case and we’re not having a view on the ruling or looking to overturn the ruling”, despite the amendment specifically naming Mr Paterson.
“It’s absolutely not a case of MPs marking their own homework,” the spokeswoman added.
Daniel Bruce, chief executive of anti-corruption campaigners Transparency International UK, said: “With this vote MPs have sent a clear signal that they believe there should be one set of rules for them and another set for everyone else.
“This is hugely damaging for trust in our democracy and the rule of law.”
Dave Penman, the general secretary of the FDA representing senior civil servants, said: “It is clear that Members of Parliament are more concerned about protecting one of their own rather than following their code of conduct and upholding standards.
“The vicious and orchestrated campaign of personal attacks against the Parliamentary Commissioner for Standards – a public servant who cannot answer back – is completely unacceptable.”
Standards Committee chair Chris Bryant had warned that if the Leadsom amendment won, then “the public would think that we would be the Parliament that licensed cash for questions”.
There had never been a successful amendment to reduce the suspension of an MP since the Second World War, while the House had never voted down a disciplinary sanction since the creation of the modern standards system.