It now looks unlikely that the legislation will make it to parliament before MPs go into recess for the Australian winter, postponing the expected flurry of foreign acquisitions that would have followed.
Among the most likely targets for takeover is John Fairfax Holdings, owner of the Sydney Morning Herald and The Age.
The ruling Liberal Party had planned to introduce legislation that would see foreign media ownership laws scrapped, opening up the way for companies such as Dow Jones, Pearson and Independent News & Media, run by the Irish businessman Sir Anthony O'Reilly, to take over Australian companies.
The Liberals would have needed support from one of the major opposition parties to pass the bill, but it has failed to win this.
However, the news is not too damaging for Australian media companies' share prices, as there was already doubt in the market that the government would be successful.
The opposition Labor Party has said that it wants more comprehensive regulation that covers pay-TV services, while the Democrats argue that Australian media should remain owned by Australians.
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