MPs have rejected amendments made in the House of Lords to the lobbying bill about staff costs and constituency spending limits.
The Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Bill would introduce limits on campaigning spending in the run-up to elections.
Voluntary sector groups fear that the legislation will prevent them from speaking out on issues that could be regarded as party political.
The government was defeated in the Lords in the past week on two amendments that would exclude some staff costs from the bill and would in effect exclude the bulk of activity by charities and voluntary organisations from being counted towards individual constituency spending limits.
But during a debate yesterday in the House of Commons on the amendments made in the Lords, MPs voted to reject those two changes.
Andrew Lansley, the leader of the House of Commons, told MPs that the government did not support the two amendments.
He said that government discussions with the sector had "increasingly demonstrated a mature approach on the part of the charities, many of which have recognised that only in very limited circumstances would charities fall to be regulated".
"Many charities completely understood and agreed that it was right for those who wished to influence election outcomes to do so openly and transparently," he said. "That is what the bill is all about."
Caroline Lucas, the Green MP for Brighton Pavilion, questioned whether Lansley had listened to the views of non-governmental organisations that had tried to explain they did not organise themselves on a constituency basis and trying to allocate costs in that way would be extremely time-consuming.
"Is he ignoring those organisations because he does not understand how they work, or because he does understand how they work and wants to shut them down?" she asked.
Lansley said individual constituency limits were necessary. "Without them, the national limit could all be spent in individual constituencies: it could be targeted on a small number of constituencies in a way that would completely distort elections that are meant to be between political parties," he said. "That is the basis on which the bill is structured."
Stephen Twigg, the shadow minister for constitutional reform, reiterated concerns that the measure would have a "chilling effect" on the ability of charities and voluntary organisations to participate in debates in the run-up to elections.
He said that the bill started out as a piece of legislation on lobbying and would tackle what David Cameron, the Prime Minister, had called the "the next big scandal waiting to happen".
"However, the bill has been a disaster from the very beginning," said Twigg. "It was meant to address the next big scandal; instead, it has turned into an attack on civil society, on campaigners and on trade unions. It was meant to fix our broken politics; instead, it risks stifling free and open democratic debate. It was supposedly about stopping big money coming into our politics; instead, it creates the risk that civil society will face unnecessary and burdensome regulations."
Sir Stephen Bubb, head of the charity chief executives body Acevo, called for part two of the bill, the section that voluntary organisations are most concerned about, to be scrapped.
"The government has rejected every attempt to address the flaws that litter part 2 of the bill," said Bubb. "There is now no option but to scrap part 2 of this disastrous bill altogether.’