Welsh students may be exempt from paying top-up fees wherever they study after the Welsh Assembly Government was defeated in a vote on the issue on Tuesday.
A Conservative motion that Welsh-domiciled students should not have to pay top-ups was backed by Assembly members by 30 votes to 29. It was the Assembly Government's first defeat since it lost a working majority with the departure of Blaenau Gwent MP Peter Law from Labour.
The vote is a significant blow to proposals to introduce top-up fees in Wales from 2007, which were contained in the final report of the Assembly-commissioned Rees review of student support and fees in Wales, published this week.
The motion, which originally opposed top-up fees for any student studying in Wales, was amended after representations from Welsh vice-chancellors.
The Rees report recommends that Welsh institutions charge variable fees of up to £3,000 a year and contribute to a national bursary scheme.
Welsh students in Wales should get discounts of up to £1,000 a year, it says.
Opposition Assembly members said it was expected that fee exemptions proposed in the motion would take the form of full-cost bursaries that students could take with them wherever they studied.
The motion was tabled by William Graham, the Welsh Conservative Education spokesman. He said: "Whatever the Welsh Assembly Government decides to do, it will have to take account of the fact that it is the will of Assembly members that Welsh students should not pay top-up fees."
The Assembly Government is seeking an emergency meeting with Opposition members next week to discuss the issue.