Lawmakers rejected the government-backed bill by 37 votes to 36 after 17 hours of debate.

The vote was tied until vice president Julio Cobos - who is also leader of the Senate - broke the deadlock with a deciding vote against.

"I think today is the most difficult day of my life," said Cobos. "They tell me I must go along with the government for institutional reasons, but my heart tells me otherwise. May history judge me, my vote is not for, it's against."

Cobos had already expressed concern about the motives behind tying the tax to the value of grain on the international markets.

President Cristina Fernandez decreed a more than 10 percent sliding-scale increase in export taxes on soy and other grains in March, in a bid to trap farm products on the Argentine market and drive down prices.

Cobo's vote could unleash a political crisis in the government. The vice president belongs to the Radical Civic Union party that has traditionally opposed the Peronist party headed by Fernandez.

The proposed measure led to a major confrontation between the government and the agricultural sector, one of the most powerful economic blocs in Argentina.

Farmers launched strikes and roadblocks to protest the measure, forcing the president to agree to submit the tax package to a vote in congress.

He agreed to form part of former president Nestor Kirchner's presidential framework to increase its political popularity.

"I know I form part of this government and that I come from another political sector. This allows me to dissent or differ on some things. It's called plurality," said Cobos.

The lower house approved the tax hikes earlier this month and the Senate's approval was the key remaining step for final ratification. It is unclear what steps the executive will take now although the government has said it will abide by the decision.

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