The amendment was defeated by 282 votes to six as the Water Bill made its final stages through the House of Commons last night.
Plaid Cymru said that every Labour MP from Wales had “failed to turn up to explain their party’s split on the issue”.
The Labour Welsh government, in its evidence to the Silk Commission, noted it wants to see the Assembly gain full control over all matters relating to Welsh water.
However, shadow Welsh Secretary Owen Smith disputed this today, claiming Playid Cymru’s priority is “to tinker with the devolution settlement rather than address the cost of living issues facing Welsh families”.
Speaking after the debate, Plaid Arfon MP Hywel Williams, who tabled the amendment, said: “This is an embarrassing episode for the First Minister and his Labour Welsh Government who, once again, have been let down by Labour MPs from Wales.
“Water has been an emotive, emblematic and defining political matter in Wales. It is just one aspect of our nation’s wealth of natural resources but our people are unable to benefit from its use due to the UK Government holding the power of veto over all matters relating to Welsh water.
“Had Plaid Cymru’s amendment been carried, we would have seen control over Welsh water transferred from Westminster to the National Assembly, ensuring that any wealth generated from its extraction and export would benefit our nation.
“It is disappointing to see the Labour party in Wales yet again conform to the cosy Westminster consensus rather than put the interests of the Welsh economy and people first.”