The government lost a dramatic showdown on religious discrimination laws overnight. So what happened?

The government suffered a major defeat on the floor of the House of Representatives overnight as MPs debated its contentious religious discrimination laws in a sitting which lasted until dawn was breaking over Canberra.

In dramatic scenes, several of the government's own MPs voted with the opposition to have the government's own bill amended.

It's not unusual for Liberal politicians to cross the floor, but it is highly unusual for five to do so at once.

Now, the government has shelved the bill indefinitely, meaning it's unlikely to be resolved before the election.

Here is how it unfolded — and what happens next.

What happened overnight?

This whole debate started in 2017, when Australia legalised same-sex marriage.

When he became PM the following year, Scott Morrison made two commitments: to create new laws to protect people from discrimination on the grounds of their religious beliefs, and to end an existing caveat in discrimination law that allowed schools to exclude LGBT staff and students on religious grounds.

The religious discrimination bill has gone through several iterations since then, ultimately being watered down far more than its original proposal — though some controversies remain.

But as the government prepared to introduce it this week, it said that the commitment to end school discrimination against staff and students would only be to protect people based on sexuality, not gender identity.

That caused a storm within the party ranks, as several MPs threatened to vote against the bill, and senior ministers expressed their own reservations over a plan they deemed "problematic" and "not ideal".

Labor struggled with how to approach the bill, ultimately deciding yesterday it would attempt to change it, removing some of its most controversial elements, and extending protections to include transgender students.

Overnight, the House of Representatives debated the bill and whether to amend it.

When it was put to a vote just before 5am, several moderate Liberals held to their threats and crossed the floor to support trans protections, giving the amendments the numbers to succeed.

Liberals Katie Allen, Bridget Archer, Fiona Martin, Dave Sharma and Trent Zimmerman all voted with Labor and the crossbench for protections against school discrimination to be extended to transgender students.

With the bill already passed and the government losing the vote on the amendments, the new version has headed to the Senate, the final hurdle.

What change was made to transgender protections?

The actual change that has been made is fairly simple.

The Sex Discrimination Act already included an exemption for schools that allowed them to discriminate "in good faith" to exclude staff on the grounds of sexual orientation, gender identity, relationship status and pregnancy "in order to avoid injury to the religious susceptibilities of adherents of that religion".

The government's proposal was to remove "sexual orientation" from the list of exempted attributes that a school was allowed to discriminate on — but not anything else.

The change that was agreed was to scrap exemptions for both sexual orientation and gender identity for students.

The exemptions won't be scrapped entirely, leaving schools still able to discriminate against trans teachers on religious grounds, as well as on relationship status and pregnancy.

Where it gets complicated is that for protections for LGBT students to be included in the Sex Discrimination Act, the religious discrimination bill must also be passed.

That's because moderate Liberals wanted the religious discrimination bill and LGBT protections to be introduced together, to guarantee the protections would happen.

Religious groups like the Christian Schools Association had expressed concern over what it would mean if the exemption was scrapped entirely.

They have said it may compromise their ability to teach, but also has practical implications, such as how a single-sex school should deal with bathroom facilities and uniforms.

LGBT advocates say the result has brought mixed emotions, with concerns that elements of the bill remain discriminatory against the community.

Were any changes made to religious protections?

While Labor was successful in extending protections to transgender school students, it didn't win support for proposed changes to the religious discrimination bill.

One of its most controversial elements is around "statements of belief" — a provision that would protect moderate religious beliefs from being deemed discriminatory, so long as they are not made in a malicious way and don't threaten, harass or vilify someone.

Labor argued the "statement of belief" would give religious people a privilege to discriminate against other groups.

When it came to a vote, moderate Liberal MP Bridget Archer still crossed the floor in opposition to the government, but the other defectors remained, giving the government enough numbers to defeat the proposed change.

What happens now?

The bill now sits before the Senate, where today senators voted not to debate it.

That leaves its future uncertain because the only other time the Senate is sitting between now and the election is in March, when the government will deliver its budget.

And the government is unlikely to try and bring it back then because it wants the focus to be on its budget promises as it gets ready to go to the polls.

Labor politicians had agreed yesterday they would try to move their amendments in both houses,

The opposition hoped that some of its changes might succeed in the House of Representatives with the support of moderate Liberals, but its ultimate plan was to take up the fight in the Senate, where the government does not have a majority.

The government still has the nuclear option being pushed for by some religious groups and some conservative government members to dump the bill.