A bid to amend section 18C of the Racial Discrimination Act and make it lawful to offend, insult and intimidate others on the basis of race was voted down by Labor, the Greens and a slew of crossbenchers, including Nick Xenophon and the Tasmanian Independent Jacqui Lambie.

Attorney-General George Brandis described the defeat as a "sad day" but Labor MPs celebrated the bill's scuttling with frontbencher Tony Burke declaring it a victory for anyone who had experienced racism. The Independent Senator Cory Bernardi, who has led the charge to change the law since the coalition abandoned its election promise in 2014, accused the government of setting the changes up to fail accused the coalition of collaborating in a "tricky deal." But this was immediately rejected by the Attorney-General George Brandis who said "that is not true."

But the government will likely be more successful in passing procedural changes to how the Australian Human Rights Commission handles cases, which make it easier to dismiss vexatious complaints and require greater transparency toward defendants.

The government's loudest proponents of changing section 18C suggested the issue could be revisited if further examples of the law's problematic application came to light.

"I strongly suspect we'll be back here debating this issue again when the next QUT students or Bill Leak case occurs," Liberal senator James Paterson told Fairfax Media.

"And that will be their [Labor, the Greens and NXT] fault. Section 18C, which they claim to believe in, will be further discredited, and the pressure to fix it will be even greater than it is now."

Senator Brandis told the chamber the debate took on a more "serious and indeed sinister significance" in light of Labor considering extending section 18C's provisions to sexuality, disability and age.

"This is not primarily a debate about race. It is a debate about free speech," Senator Brandis said. "Not a single country in the entire world has a section 18C."

He said it was "deeply offensive and insulting" for Labor and Greens senators to suggest he supported weakening race hate laws because he was a white man.

Labor frontbencher Tony Burke who represents one of Australia's most multicultural seats in Sydney's southwest suburbs told Fairfax Media the defeat of the bill was a victory for anyone who had experienced racism in Australia.

"This win will be felt by anyone who has experienced racism and knows that racism is more than just words," he said.

"Those who attempted to trivialise the damage caused by racist hate speech should hear this message and find a cause that doesn't give licence for insults, offence and humiliation."

Conservative Senator Cory Bernardi said he was disappointed with the result and questioned whether the government's heart was really in it.

"The process has all the hallmarks of a tricky deal having been agreed between the government and Labor party," he said.

"This is just lip service, the government wants to get the process changes through. The cost of that deal is no substantive reform to section 18c but who knows what the government will get in return?

"It appears the government's intention was merely to tick and box and say 'we tried let's move along.'

"There was never any serious commitment to meaningful change.

"I suspect that harass was so poorly drafted that it was set up to fail," just like last time," he said.

A spokesman for Labor's Penny Wong said Senator Bernardi's claim was "categorically not true" backing the Attorney-General's denial.

The previous coalition government led by Tony Abbott proposed a radical rewrite of the act that sparked a furious backlash amongst ethnic groups.

That triggered Mr Abbott, the then prime minister, to abandon the reform as he sought the Muslim community's support for stronger counter-terror laws.

Senator Brandis' defence of that proposal, with his infamous "people have the right to be bigots" speech, was considered one of the factors in why the change failed to generate any broad support within the community.

The free-market think tank, the Institute of Public Affairs urged the Coalition to take to the next election a policy to amend the section 18C.

Follow Latika Bourke on Facebook