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Plans to create an external statutory regulator which will hold MPs to account have been scrapped.
The prime minister dropped the proposal for an independent disciplinary body to ensure that the controversial Parliamentary Standards Bill becomes law before parliamentary recess.
A new commissioner for parliamentary investigations will now report to the Commons standards and privileges committee, which will decide on any disputes.
The move means that MPs will remain the final judge over any disputed allegations of wrongdoing against other MPs.
And with the standards and privileges committee being immune from judicial review by the courts, it is thought the move will ensure the Bill's constitutional impact is minimised.
Measures to make the House of Lords subject to the external regulator were also dropped.
Justice secretary Jack Straw explained: "There has been a concern that, by setting up a statutory body to oversee MPs' expenses, parliament will be subject to judicial review and infringement by the courts.
"We have tabled amendments to make it clear that the independent parliamentary standards authority cannot discipline MPs in any case where there is a matter of dispute between the MP and the authority, and that the issue must then be referred to the Commons committee on privileges."
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