In a tight ballot, the Riksdag on Thursday voted 152 to 149 to pass a bill calling for scrapping the current format of the so called 'phase 3' of the government's jobs and development guarantee policy.
While the opposition wants phase 3 to be stopped altogether, the government seeks better ways of dealing with the long term unemployed.
The vote in itself does not necessarily mean the controversial programme will be abandoned, but it still represents an uncomfortable situation for the minority Alliance coalition, in what has turned into a heated national debate underlining the delicate balance in parliament.
The controversy surrounds the phase 3 part of the government's three-part jobs and development guarantee programme introduced in 2007.
The final phase of the programme was designed to ensure that participants were offered employment at a workplace in order to gain experience and fresh references following periods of coaching and re-training.
Opposition, both in the Riksdag and among the public has highlighted that companies are being subsidized by the tax payer to take on new workers, regardless of their suitability for the job.
Opponents claim that phase 3 offers no real help to the long-term unemployed, while employers can in effect enjoy free labour.
Labour secretary Hillevi Engstrom had already vowed to review the process but says she is surprised by the weight of opposition to the plans.
"We will weigh it up and discuss things further” she told news agency TT.
Meanwhile opposition has come from many quarters, not least among the Christian Democrats, themselves a member of the centre-right minority government coalition.
"We have seen the flaws, it is possible to do much better," said Penilla Gunther of the employment committee. However she is dismissive of the opposition's calls to scrap phase 3 altogether.
"They leave it up to the government to make proposals, but they do not have any of their own," she said.