Ministers defeated a move to give MPs the decisive say on what happens over Brexit if they do not agree with the final deal negotiated by the United Kingdom government.
The results could also deliver a further blow to Prime Minister Theresa May's authority, which was severely damaged when she.
But the resignation by Phillip Lee, who has always been critical of the government's Brexit strategy, underlined the deep rifts in the party over Brexit that makes such votes anything but easy.
British Prime Minister Theresa May faces a showdown in parliament with lawmakers later on Tuesday who want a "meaningful vote" on an eventual Brexit deal.
Meanwhile, Tory Brexiteer Bernard Jenkin told the government he would not accept ministers agreeing to Mr Grieve's demand for the House of Commons to assume control of Brexit negotiations in the event of no deal.
After days of frantic lobbying by Conservative officials to try to get the party on board, May renewed appeals for unity over the "meaningful vote", after the government appeared to have secured a compromise to stop a similar rebellion on Wednesday over Britain's trading ties with the EU.
Earlier this year, Lee had called on the government to release its economic impact assessments of Brexit and suggested the government change tack in talks with the European Union, underlining the deep rifts in his party over the best way to manage Britain's exit.
The former attorney general said: "The government agreed that the amendment raised an important issue, that the matter about the ability of Parliament to have a meaningful vote not just on the final deal but also on "no deal" had to be allowed".
These were the words of a minister expecting to win the vote.
May had earlier warned that defeat would weaken her hand in exit talks, while a string of eurosceptic MPs stood up to accuse the rebels of trying to thwart Brexit.
The government has avoided a major defeat on its Brexit bill by 324 votes to 298 after a late concession.
It is believed the deal will see parliament playing a bigger role in Brexit negotiations if there is no deal by November 30 this year.
As with last week's set-to with Davis over the Northern Irish backstop, both sides of the Brexit culture war in the Tory party were nearly immediately in dispute about what the climbdown meant - and who had won.
Dr Lee's shock departure came as Brexit Secretary David Davis warned potential Tory rebels that they can not undo the European Union referendum, ahead of a tricky 48 hours in which the Government will try to get its Brexit programme back on track. A victory for the "meaningful final vote" amendment would leave the government weaker in am upcoming round of talks with European Union negotiators in late June, and also weaken Theresa May's authority as leader.
But once Britain leaves the E.U.it must find a way to regulate or otherwise account for goods crossing its border into Northern Ireland while keeping it open.
Brexit protesters outside Parliament House.