Opposition Leader Bill Shorten denied Tuesday's vote on faster medical transfers for asylum seekers, which dealt the coalition an extremely rare and embarrassing defeat, showed the government had lost control.
The ALP and key crossbench and independent MPs and Senators came together to vote the bill through, delivering a historic blow for the government on the eve of an election.
Immigration policy requires asylum seekers intercepted at sea to be sent to camps in PNG and its northern island of Nauru, and they can not set foot in Australia, even if they are found to be refugees.
Mr Morrison said the law would weaken the nation's tough border policies and embolden human traffickers.
The Bill, which is an amendment to government legislation, was first passed by the Upper House in December, and will return to the Senate for a vote on Wednesday after several changes were made to it.
About 1,200 refugees are estimated to be in exile in Nauru and Papua New Guinea's Manus, where they've been indefinitely detained for nearly six years.
The push to speed up medical evacuations was first made by independent MP Kerryn Phelps past year after she won the Liberal Party stronghold of Wentworth when former PM Malcolm Turnbull was ousted in a party coup.
Since 2013, Australia has sent asylum seekers arriving by boat to detention centres on Manus Island (Papua New Guinea) and Nauru.
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Kerryn Phelps, the independent MP who championed the bill and who previously served as President of the Australian Medical Association (AMA), described the vote as "such an important day for sick people needing medical care they are unable to receive".
The changes included a provision that only the 1,000 asylum seekers now held on Nauru and Papua New Guinea and not any future arrivals would be considered for medical evacuation under the new regime.
But criticism of the camps has grown amid reports of abuse, suicides and lengthy detention periods, even as the government says the policy is discouraging asylum seekers from embarking on unsafe sea voyages.
When the sitting government last lost a vote on substantive legislation in 1929, then prime minister Stanley Bruce immediately called an election, and lost it.
"Under my government Australia will be stronger. People have died as a result", Ms Nicholls said.