Bill Rammell, the further education minister, has warned colleges that he will try to reintroduce new powers for the Learning and Skills Council to sack failing principals after the proposal was rejected by the House of Lords.
The Association of Colleges was celebrating the defeat on Tuesday of plans to increase the powers of the council, which the association claimed would only provoke disputes at employment tribunals.
Under the provisions in the FE Bill, the LSC would have been given the power to intervene directly and sack failing principals and senior staff, including those who were "persistently coasting".
Conservative and Liberal Democrat peers united to throw out the clause by a majority of 52.
Baroness Morris of Bolton, a Tory, said: "If there is a need to remove a principal or a member of a governing body, the power should reside with the secretary of state (for education)."
Mr Rammell said he was disappointed with the decision and would seek to reintroduce the powers when the Bill returns to the House of Commons.
"It would have made it easier to address quickly and effectively those rare instances of unsatisfactory further education provision," he said. "The LSC is better placed to exercise these powers than the secretary of state because it has a good understanding of the local factors that may be behind any instances of underperformance."
The minister and colleges were united in welcoming the passage of provisions to allow colleges to award their own degrees, after the Government agreed to introduce a probationary period.