The Government has conceded that taxpayers could be landed with a £100m bill to compensate prisoners who have been denied a vote, in defiance of the Strasbourg court.
And legal experts have warned that inmates could seek to have the results of this year's Scottish and Welsh elections, plus the referendum on the 'alternative vote' declared illegal.
Last night, it was unclear what the Government's next move will be - although it seemed certain that its original plan to grant the vote to prisoners serving terms of under four years was dead in the water.
Quizzed on the controversy on a visit to Swindon, the Prime Minister insisted he strongly believed that someone should forfeit their democratic rights if they had committed a crime.
But he added: 'We're in a situation where the courts are telling us we are going to be fined unless we change this. We are going to have to sort this out one way or the other.'
In the Commons, attorney-general Dominic Grieve hinted the issue might be kicked into the long grass, telling MPs he anticipated quite a drawn-out dialogue between ourselves and the ECHR.
No Merseyside or North Cheshire MP was among the 22 voting to lift the ban on prisoners voting, while five - Joe Benton (Lab; Bootle); Graham Evans (Con; Weaver Vale); Esther McVey (Con; Wirral West) Stephen Mosley (Con; City of Chester); John Pugh (Lib Dem; Southport) - backed the motion to defy the ECHR.
Mr Pugh, who defied his own party's policy, said: Society is in a muddle over human rights. I hope this vote will force us to do some hard thinking.
Both government ministers and Labour shadow Cabinet members were ordered to abstain, while backbench MPs were granted a free vote. The result is not binding on the government. The vote was on a motion, tabled by ex-Conservative home affairs spokesman David Davis and Jack Straw, the former Labour Home Secretary, which insisted the issue should be decided by democratically elected lawmakers.
Mr Davis rejected the idea that Britain was bound by the ECHR ruling, saying: To those who say we must obey the law, I say it is the historic task of this Parliament to correct bad law, wherever it comes from.
The Government had insisted its proposal - of voting rights for prisoners serving under four years - was the minimum required to fall into line with the ECHR, according to its legal advice.
But Downing Street then encouraged Tory MPs to vote for the ban, believing it would deliver ammunition to secure more favourable legal advice.
Restricting the vote to jail terms below one year is under consideration.
However, Mr Davis himself rejected that idea, telling MPs that Austria followed that path - and still went on to lose when challenged at the ECHR.