The non-binding motion by Democrat Lois Capps of California would have instructed House negotiators to oppose legal protection for MTBE makers. The chemical has leaked into water supplies in all 50 states and is a suspected carcinogen.

The House voted 217-201 to reject the motion. But the close vote shows how divided Congress is over immunizing big oil companies from MTBE product liability lawsuits.

Some oil executives have said they fear that MTBE liability could open the door to billions of dollars in huge liability lawsuits, akin to those faced by the tobacco and asbestos industries.

House Republicans including Majority Leader Tom DeLay and Joe Barton of Texas have lobbied hard for the legal protection for oil refiners and other MTBE makers. But moderate Republicans in the Senate and many Democrats say the oil industry is enjoying record-high profits and should not duck liability and stick communities with the MTBE cleanup bill.

The vote portends an uphill battle for Barton in a Senate-House bargaining session to reconcile both chambers' energy bills that got underway late on Thursday.

Sen. Pete Domenici, the Senate's chief energy negotiator, said "it's going to be tough" to meet the President George W. Bush's deadline for Congress to send him a final energy package by Aug. 1. "But I believe we can do it," he added.

Domenici said there are "few new issues" in the Senate and House energy bills, as this is Congress' third try at clearing broad energy legislation.

Negotiators will meet again on Tuesday and Thursday, Barton said. If necessary, they will work the following weekend to complete a bill, he said.

Lawmakers must also tackle differences in the bills' requirement for corn-blended ethanol, global warming and whether utilities must begin to use renewable energy sources.

The House energy bill would offer $8 billion in tax breaks to produce more domestic energy, while the Senate bill is more generous with double the amount.

MTBE CLEAN-UP FUND

To resolve the MTBE issue, Barton is backing an industry-funded pool of money that states could use to clean up the contamination.

Barton will have to sell his deal to skeptical members in the Senate, especially those in the Northeast states like New Hampshire and Maine which have the lion's share of contamination. MTBE liability was the main reason that an energy bill failed to pass the Senate last year.

"The liability protection was responsible for killing the energy bill last time, and it could easily happen again," Capps said.

A spokeswoman for Domenici said he and Barton have not struck a deal on MTBE. The two were expected to privately meet on Friday to discuss it.

Barton refused to estimate the size of a clean up fund, but Democrats say it could contain about $4 billion to $8 billion.

"We're not sure what that dollar amount is so we're going to try to come up with a mechanism that funds it sufficiently to actually do the cleanup," Barton told reporters. "We're talking about real dollars."

US oil refiners began adding MTBE to gasoline in 1979 as an anti-knock agent that replaced lead. But the chemical has seeped into municipal water supplies across the nation through leaky underground tanks, rendering the water undrinkable.