The pitfalls of minority government were brought forcibly home to the SNP administration at Holyrood last night when they lost their first piece of legislation since winning power over a year ago.

SNP ministers saw their plans for a new national arts body, Creative Scotland, collapse in shambles after they lost a vital vote on the financial resolution setting up the body that would have merged into one the country's two main arts quangoes, the Scottish Arts Council and Scottish Screen.

The legislative humiliation for the Nationalists came after Labour and Liberal Democrat MSPs complained that they had been misled over the financial implications of the Bill. However, the SNP accused Labour of reneging on a previous behind-the-scenes promise to allow the Bill and the financial memorandum accompanying it to be brought back to Parliament next week.

The defeat for the SNP came even though the general principles of the Bill, the so-called Stage One of the legislative process, had been approved by MSPs only minutes before. However, the financial backing for any legislative measure has also to be supported by MSPs and it was at this hurdle that the Bill fell by 68 votes to 49.

Later, Government sources argued that the Bill had not been killed, but had merely been delayed, although any delay could be at least six months. Senior SNP sources accused Labour of “reckless opposition” and of breaking a deal that would have enabled the financial memorandum to be temporarily withdrawn for clarification.

The debacle led to heated exchanges in the chamber with Ken MacIntosh, the Labour MSP, accusing Linda Fabiani, the arts minister, of attempting to pull the wool over the eyes of MSPs. He said: “In her opening statement, she led members to believe that the budget for the creative industries would be transferred from Scottish Enterprise to Creative Scotland.

“In her summing-up she then clarified that no such budget would be transferred. This is a total shambles and gross incompetence.”

Government business managers were last night looking into the implications of the vote.

Seona Reid, the director of Glasgow School of Art and a former director of the Scottish Arts Council, said that the defeat would allow time to reconsider the purpose of Creative Scotland.

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