Theresa May faces a concerted campaign of parliamentary warfare from a powerful cross-party alliance of MPs determined to use every lever at their disposal to prevent Britain leaving the EU without a deal in March.

The former staunch loyalist Sir Oliver Letwin signalled that he and other senior Conservatives would defy party whips, repeatedly if necessary, to avoid a no-deal Brexit, as the government suffered a humiliating defeat during a debate on the finance bill in the Commons.

Letwin and 16 other former government ministers were among 20 Conservatives who banded together with the home affairs select committee chair, Yvette Cooper, and the Labour leadership to pass an anti no-deal amendment.

They defeated the government by 303 votes to 296 – a majority of seven – making May the first prime minister in 41 years to lose a vote on a government finance bill.

The Guardian view on Brexit: the government has failed – it’s time to go back to the people | Editorial Read more

The move came after the PM conceded to senior ministers she was on course to lose next week’s historic Brexit vote, as the first cabinet meeting of the new year exposed deep divisions about the best way out of the deadlock.

May told her cabinet she would respond swiftly with a statement to the House of Commons if she failed to win MPs’ backing for her deal next Tuesday. But cabinet sources said it was unclear what course she planned to take – and the general mood was of how “boxed in” the government was.

Several pro-remain ministers, including David Gauke, Amber Rudd and Greg Clark, used the meeting to stress the importance of avoiding a no-deal Brexit, with Rudd saying that would have to mean reaching out across the House of Commons.

Rudd told her colleagues: “More than ever we need to find the centre, reach across the house and find a majority for what will be agreed. Anything will need legislation.”

However, opponents of a softer Brexit, including the House of Commons leader, Andrea Leadsom, played down the risks of no deal and joined May in strongly rejecting the idea that has gained traction in Westminster in recent days of extending article 50.

Leadsom has told friends she would refuse to table the legislation necessary to extend article 50, so that May would have to sack her if she wished to pursue such a policy.

But Tuesday’s rebellion by erstwhile Tory loyalists underlined parliament’s determination to take control of the next steps in the Brexit process.

Letwin, who gave an emotional speech saying he had almost never rebelled against his party, made clear Tuesday’s vote was the first step in a concerted effort by parliament to bind the government’s hands in the run-up to Brexit day.

“The majority tonight that is expressed in this house will sustain itself,” he said. “We will not allow a no-deal exit to occur at the end of March.”

Facebook Twitter Pinterest Letwin gave an emotional speech during the financial bill debate. Photograph: Parliament TV/BBC Parliament

The Labour leader, Jeremy Corbyn, said the vote was an important step to prevent a no-deal Brexit. “It shows that there is no majority in parliament, the cabinet or the country for crashing out of the EU without an agreement”, he said. “That is why we are taking every opportunity possible in parliament to prevent no deal.

“Theresa May must now rule out no deal once and for all.”

At cabinet earlier on Tuesday, the environment secretary, Michael Gove, had warned that too many MPs were holding out for the ideal Brexit deal, instead of facing the reality that there was no alternative to May’s approach.

One source said he had compared MPs hoping for a better deal to “mid-50s swingers,” wishing Scarlett Johansson would turn up to one of their parties. “Or Pierce Brosnan,” said Rudd.

Later in the discussion Gauke, the justice secretary, compared Labour’s Brexit position to Johansson turning up on a unicorn, the Whitehall source said.

Clark stressed his determined opposition to a no-deal Brexit publicly on Tuesday, telling MPs, “I’ve always been very clear representing the views of small business and large business that no deal should not be contemplated.”

The prime minister was expected to announce fresh reassurances on her deal in the coming days, including a beefed-up role for parliament in framing the next stage of negotiations on Britain’s future relationship with the EU.

Downing Street has also been expecting the EU27 to offer further written reassurances about the Irish backstop, which has proved the most controversial aspect of the exit deal among Brexiters.

However, they appeared likely to fall short of the legally binding changes to the withdrawal agreement the Democratic Unionist party has demanded.

French EU affairs minister, Nathalie Loiseau, said on Tuesday, “regarding the Irish backstop no one wants to activate it”, adding, “these are political assurances but there is nothing more that we can do”.

Loiseau also stressed that the deal MPs would vote on next week represented “the best possible agreement”, and “the only one”.

Tory MPs were whipped to vote against the no-deal amendment on Tuesday evening, despite rumours that the government would concede.

Privately, some cabinet Brexiters believe May would rather exit with no deal than tack towards a permanent customs union, or single market membership. But Tuesday’s vote suggested MPs were resolved not to let that happen.

Before the vote, the prime minister had addressed a packed room of MPs, mostly from Labour and other opposition parties, who had signed a letter urging her to rule out no deal.

Those present said that the prime minister tried to sell her Brexit deal, arguing that no Brexit would have “serious consequences for our democracy” and that the best way to avoid no deal “was to back a deal”.

One Labour MP said after the meeting she was “a lot more concerned about no deal” because she had heard several other MPs warning of the risks of it in their constituencies.

Those behind the amendment’s success conceded it may have little material effect on no-deal preparations. Instead, its purpose had been to galvanise MPs across the house and prove there was a parliamentary majority to oppose no deal. The rebels said they could seek to amend any and every piece of legislation the government brings to parliament between now and March.

Cooper, speaking in the Commons, said MPs across the house agreed on the dangers of no deal. “I’m worried we could come to the crunch and parliament will not have the powers to stop [no deal] happening,” she said. “I think we have a responsibility not to just stand by.”

Letwin, during his speech in the Commons, sounded almost tearful as he said he would rebel against the Tory whip. “I will be voting with [Cooper] against my own government, very much against my own will, and I will continue to do so right up until the end of March in the hope we can put paid to this disastrous proposal.”

The government also confirmed on Tuesday that there would be five more days of debate on the Brexit deal, starting on Wednesday, with the Brexit secretary, Steve Barclay, opening the debate.

However, the business motion tabled by the government suggested it would effectively be a resumption of the debate that was unexpectedly paused on 10 December, when May conceded she was likely to lose “by a significant margin”.