A LABOUR backbench rebellion against Tony Blair and Alan Milburn's controversial plans for foundation hospitals was defeated last night.

An afternoon of arm-twisting by the Prime Minister and the Health Secretary paid off with the 130 MPs who signed a House of Commons motion attacking the plans, melting down to a rump of 65 rebels.

From the half dozen North East MPs originally stating their opposition to the proposal, only Durham North's Kevan Jones, Gerry Steinberg (Durham City) and Doug Henderson (Newcastle North) backed an amendment that would have halted the plans.

About 30 Labour MPs also joined the Tories and Liberal Democrats in voting against giving the Bill a second reading.

The Government won both votes. It defeated the rebel amendment - which was also supported by the Liberal Democrats - by 297 votes to 117. And it won the second vote on the main motion to give the Bill a second reading by 304 votes to 230.

Last night, the Labour rebels appeared to accept defeat, saying they would not oppose the Bill when it reaches committee stage, but they may try to amend it.

And they warned the issue of foundation hospitals would continue to be a "major source of strife" for Labour.

Former Health Secretary Frank Dobson, one of the leading sponsors of the rebel amendment, said: "This is now going to be a running sore in the health service, the Labour Party and the trade unions.

"It will dominate quite a few trade union conferences in the summer, it will dominate the TUC, and it will be a major source of strife at the Labour Party conference."

Mr Dobson said the rebels had been encouraged by the size of the rebellion in the face of "some very very heavy whipping and threats".

At Prime Minister's Questions, ahead of the debate, Mr Blair insisted the "massive investment" in the NHS had to be matched by "real reform" in order to prove to the public that their money was being well spent.

Opening the debate, Health Secretary Alan Milburn rejected claims by Labour critics of foundation hospitals that they would lead to the development of a two-tier health service.

"Every clause of this Bill is about maintaining the NHS as a universal service, free at the point of use and based on need, not ability to pay," he said.

The onslaught by the Labour rebels was led by Mr Dobson who warned the Government's plans would lead to a "dog eat dog" situation, with foundation hospitals the "cuckoo in the local health nest".