The Senate on Wednesday voted to adjourn without voting on the Government’s draft Water Bill.
The Government’s proposal to create an Irish Water Corporation was defeated by a vote of 12-9.
The measure would have created an independent agency to administer the Irish River, with its own water supply and its own customers, in line with international agreements.
The bill was opposed by the Irish Farmers Union and others who argued that it would have cost billions of euro in public money and could create an unfair and unequal water market.
But the Government said the bill would save the State €30m annually, with savings from privatising the water supply expected to be more than €100m.
The vote was seen as a victory for the Government, as the bill failed to pass the Irish Senate with support from nine senators.
It comes after the Irish Government said on Tuesday that it had secured a deal with the United Kingdom to reduce water bills for thousands of people.
The Irish Government has been forced to accept billions of pounds in cuts to the budget, including cuts to public services and pensioners’ entitlements, as part of a bailout deal with lenders.
Irish Water is the third largest water company in Ireland and was hit hard by the floods.
The corporation is owned by the Department of Water, which has been bailed out by the Government.