STRASBOURG — Members of the European Parliament on Wednesday rejected a landmark proposal to cut red tape for businesses.

The decision sets up a clash with the European Commission and EU leaders, who are on a drive to roll back legislation quickly to help the bloc become more competitive under intense pressure from industry.

It means that MEPs will have to vote again on whether they back the Parliament’s compromise proposal during the next plenary session in November, which delays the process of getting the omnibus approved.

It’s a surprise after the Parliament’s centrist political groups reached an agreement to support the deal two weeks ago. Out of 661 lawmakers who voted on Wednesday, 318 were against, 309 in favor and 34 abstained.

The vote was a secret ballot — a move pushed by the far-right Patriots group to allow centrist and liberal MEPs to defy their group line without retribution.

“This is a worrying signal for Europe’s credibility,” said Tsvetelina Kuzmanova, EU sustainable finance policy lead at the University of Cambridge Institute for Sustainability Leadership, adding: “The focus has shifted from improving the rules to using them as bargaining chips.”

Proposed last February, the omnibus bill aims to reduce reporting obligations for companies under the bloc’s sustainability disclosure and supply chain transparency rules. It’s the first of a series of proposals from the Commission aimed at cutting red tape for businesses under Ursula von der Leyen’s second term as Commission president.

Earlier this month, the Parliament’s major centrist groups — the European People’s Party, Renew and the Socialists and Democrats — had agreed to roll back reporting obligations for companies after intense negotiations that nearly made their ruling coalition collapse.

The groups had major disagreements on how far to roll back the rules, including on whether companies should be legally liable for human rights and environmental violations in their supply chains under EU law, and whether they need to have a transition plan outlining how they intend to meet the emissions reduction objectives of the Paris climate agreement.

Wednesday’s outcome opens the door for all political groups to again propose changes to the centrist compromise. That could see Parliament push for greater rollbacks or fewer cuts to red tape than the Commission and EU countries want.

The Patriots group is hoping the center-right EPP will now turn to its MEPs and other right-wing parties to find a compromise deal that results in slashing even more EU regulation.

“By challenging the negotiation mandate, the Patriots ensured that the Parliament will have the opportunity to reopen the text and introduce substantial improvements,” the group said in a press release. “The goal is to deliver a truly business-friendly framework, one that cuts red tape and strengthens the competitiveness of the European internal market.”

Others are hoping for the opposite. “Today’s vote makes it clear that Parliament is not ready to rubber-stamp EPP’s blackmail and a deal that weakens Europe’s sustainability framework,” said Greens MEP Kira Marie Peter-Hansen. “The outcome gives us another chance to improve the text and make sure our sustainability and due diligence rules actually matter,” she added.

In delaying the process of getting the first omnibus over the line, the Parliament is likely to frustrate EU leaders who are pressuring Brussels to get this done before the end of the year, according to draft conclusions obtained by POLITICO and set to be adopted Thursday.

Leaders from 19 EU countries including Germany, France and Italy on Monday called for a “constant stream” of proposals to simplify the bloc’s rules and boost their economies.

“Simplification is key for competitiveness,” read the letter obtained by POLITICO.

This story has been updated.