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MPs have voted 323 to 302 to approve a tripling of tuition fees for students in England.
The government's majority was cut from 84 to just 21.
Earlier Vince Cable had defended the coalition's plan to increase tuition fees as demonstrators clashed with police in Parliament Square.
Battling heckles in the Commons from the Labour benches, the business secretary said the new policy was "more progressive than the existing system" and more progressive than the Browne review on which the policy is based.
"That means just a little under 25 per cent of all future graduates will pay less than they do under the current system that we inherited," he told MPs.
And he said Labour had "miserably failed" to help poorer people get to university during their time in office and left a "shameful inheritance" on social mobility.
Cable told MPs that there had been "very difficult choices to make" but in the end he had opted for a set of policies which provided a "strong base for university funding".
It would create a "significantly more progressive system of graduate payments".
Under the plans universities would be able to charge £6,000 a year and up to £9,000 in "exceptional circumstances".
The current fee cap is £3,290.
Students will not pay any fees upfront and will only begin to pay them back when they earn £21,000.
Demonstrators clashed with police outside Parliament as MPs prepared to vote on the plans.
Labour's John Denham said the changes to tuition fees would leave an "untried, untested and unstable market for students" and he called on MPs from all sides to vote against the proposal.
And while he said his speech would not be a "good party political knockabout ... no sane person" would promote the changes to tuition fees in the way the government had.
"So much of the media coverage of this issue has been dominated by Liberal Democrats splits we could be forgiven for thinking today's vote is about the future of the Lib Dems," he said.
"It's about the something much more important than that.
"There are millions of parents and millions of students who don’t care about the Lib Dems but they do care about the huge fee increase.
"If this Tory measure goes through with support or abstention of Lib Dems that party will forfeit the right to call themselves a progressive political party."
And he attacked David Cameron and Nick Clegg for not remaining in the Commons for the rest of the debate.
Both the prime minister and the deputy prime minister left the chamber soon after Cable sat down.
Julian Lewis (Con, New Forest East) said it is a sad day when young people are deterred from going to university.
Jeremy Corbyn (Lab, Islington North) said rather than kettling young people in Parliament Square, students should be welcomed into parliament.
He told Cable he should be "ashamed of himself" and urged the government to tax people "because they are wealthy".
Summing up the debate, shadow minister Gareth Thomas said it had been "passionate and robust".
He accused Nick Clegg and David Cameron of becoming the nation's "premier loan sharks" with no escape for graduates from higher debt.
Thomas said families are being let down, especially when the plans to abolish EMA in January are considered.
"We speak for those ordinary working people," he said to Tory jeers.
"An abstention tonight is not enough."
Universities minister David Willetts said all three parties confronted the issue of university funding and reached the same conclusion.
He said the Conservatives voted against tuition fees in 2004, but he is now convinced by evidence that despite the cost of university rising, the proportion of people in England going to university continued to rise.
Willetts said the new policy is an improvement on Labour's, with a higher repayment threshold and a new £150m scholarship fund.
In conclusion he said the government's tuition fees policy is fair, progressive and puts power in the hands of students.
MPs then voted in favour of the rise in fees, but 21 Lib Dems, including former leaders Ming Campbell and Charles Kennedy, voted no.
During the afternoon Lib Dem ministerial aides Mike Crockart and Jenny Willott announced they intended to resign from his post in order to vote against the plans.
On the eve of the crucial ballot, deputy Lib Dem leader Simon Hughes revealed he intended to abstain.
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