British Prime Minister Theresa May suffered a major backbench rebellion as MPs signalled their opposition to a no-deal Brexit by defeating the government in the House of Commons.

Twenty Conservatives supported an amendment tabled by Labour former minister Yvette Cooper to the Budget-enacting Finance Bill, according to the division list.

Her proposal is aimed at restricting the British government's freedom to use the Bill to make tax changes linked to a no-deal Brexit without the "explicit consent" of Parliament.

Instead, the powers in the Bill could only come into force if the Commons has approved a Brexit deal, if the government seeks to extend Article 50 or the Commons has approved leaving the EU without a deal.

It was supported by 303 votes to 296, a majority of seven, despite three Labour MPs rebelling to oppose it.

Labour leader Jeremy Corbyn, as the next vote began, turned and applauded Ms Cooper, also giving a thumbs up.

In a statement outside the House of Commons, he said the vote in support of the amendment was "an important step to prevent a no-deal Brexit".

Tory rebels included former ministers Sir Michael Fallon, Anna Soubry and George Freeman.

During debate on the Bill, Conservative former cabinet minister Nicky Morgan urged MPs to rule out the "most damaging option" that could happen on 29 March.

She said: "No-deal is a terrible deal and it would be a gross dereliction of the responsibility of members of this House to inflict a no-deal situation on our constituents."

Conservative former minister Oliver Letwin said he was supporting the amendment because he wanted to show the government that MPs will not allow a no-deal Brexit.

He said passing the amendment would show there is a majority against that outcome, and that there will continue to be a majority against it, saying they will "bring forward similar amendments" to frustrate other legislation in this area.

Ms Cooper told the House of Commons: "This is too serious for us to play a massive game of Brexit chicken. The country cannot afford to wait to see who blinks first."

She advised ministers to secure approval for a Brexit deal or get "explicit" agreement for a no-deal Brexit before 29 March, adding: "Or if that fails, commit to seeking an extension to Article 50 so there is time to sort things out."

Ms Cooper said the amendment does not solve the problems of Brexit but "gives us the opportunity to rule out the worst way forward and to do so in a way that is calm, measured and sensible".

Tory MP John Baron urged Ms Cooper to "temper her dire warnings about WTO", adding investment was about comparative advantage such as low taxes and more flexible labour market practices.

Treasury minister Robert Jenrick had urged MPs to reject Ms Cooper's amendment and said the government was seeking to "provide certainty to taxpayers" via the Bill.

Mr Jenrick said clause 89, which was the subject of the amendment, ensured no more than "the most minor and technical changes", adding: "Clause 89 is simply prudent preparation to provide our taxpayers with the certainty they deserve.

"As I made clear the government doesn't expect or want a no-deal scenario, that's why we've negotiated the withdrawal agreement that will see us leave the EU in a smooth and orderly way on 29 March."

The Bill later received an unopposed third reading and will undergo further scrutiny in the House of Lords.