The Democrat-controlled Senate has defeated a House-approved bill to raise the U.S. debt limit by a vote of 59 to 41 in the latest twist of a political saga that threatens to deal a blow to America's creditworthiness.
The bill had been passed by the Republican-controlled House of Representatives earlier in the day.
Senate Democratic Leader Harry Reid was expected to move forward with a different approach that aims to get enough votes from both parties to pass Congress before an August 2 deadline.
Earlier on July 29, the House passed a bill providing a short-term, $900 billion increase in the nation's borrowing limit by 218-210 votes.
The bill was seen by many as an effort to force the divisive debt issue back into the headlines closer to President Barack Obama's likely reelection bid in 2012.
Democrats who control the Senate are in favor of a longer-term, $2.5 trillion debt limit increase with about $2.2 trillion in spending cuts.
After the Republican bill was approved by the House of Representatives, White House press secretary Jay Carney said in a statement that now "leaders need to start working together immediately to reach a compromise that avoids default and lays the basis for balanced deficit reduction."
He said that "the president urges Democrats and Republicans in the Senate to find common ground on a plan that can get support from both parties in the House -- a plan the President can sign by Tuesday."
The U.S. Treasury has said that it will be unable to meet all its obligations and could risk an unprecedented default on loans and downgrading of the government's credit, unless Congress passes a hike in the debt limit by August 2.
The federal debt limit currently stands at $14.3 trillion.
The United States' biggest creditor, China, has urged a deal and through its state-run news agency accused U.S. officials of engaging in "dangerously irresponsible" politics.
compiled from agency reports