Three years of wrangling over a section of Australia's racial discrimination laws has again amounted to naught after the Senate killed off the Turnbull government's proposed changes late Thursday night.

A bid to amend section 18C of the Racial Discrimination Act and make it lawful to offend, insult and intimidate others on the basis of race was voted down by Labor, the Greens and a slew of crossbenchers, including Nick Xenophon and the Tasmanian Independent Jacqui Lambie.

Attorney-General George Brandis described the defeat as a "sad day" but Labor MPs celebrated the bill's scuttling with frontbencher Tony Burke declaring it a victory for anyone who had experienced racism. The Independent Senator Cory Bernardi, who has led the charge to change the law since the coalition abandoned its election promise in 2014, accused the government of setting the changes up to fail accused the coalition of collaborating in a "tricky deal." But this was immediately rejected by the Attorney-General George Brandis who said "that is not true."

But the government will likely be more successful in passing procedural changes to how the Australian Human Rights Commission handles cases, which make it easier to dismiss vexatious complaints and require greater transparency toward defendants.