Leader of the House Chris Hipkins said the government would fix the Water Services Entities Bill this week by removing the entrenchment clause that was voted on during committee stages.
The provision in Three Waters legislation would make it more difficult to privatise water assets.
It was a "mistake" to put the clause in, Hipkins said.
"The intention to protect assets from being sold was right, but entrenchment usually requires a super majority or 75 percent of the Parliament to vote for it," he said in a statement.
"The approach in this amendment allowed an entrenchment provision to pass in a way that is not typical for Parliament. That has wider ramifications that we are not comfortable with. That's why we will fix the issue," Hipkins said.
Hipkins said he hoped National and ACT would commit to keeping water assets in public ownership.
"It is important to note the entrenchment clause only applied to maintaining public ownership of water assets. In order to protect against privatisation of these assets we will also be seeking political assurances from the National and ACT parties via letters that ask them to commit to public ownership."
The bill had just finished committee stages, but will now be sent back so the issue can be fixed before the final reading.
ACT leader David Seymour issued a statement saying the government had been "thwarted in its sneaky attempt to entrench Three Waters provisions".
Earlier this week, National's Chris Bishop said Labour and the Greens needed to fix the issue urgently and entrenchment should only be used for constitutional matters after careful thought and debate.
