Philippine President Benigno Aquino, whose six-year term ends in June, had lobbied hard for the passage of the bill, which would have granted the nation's Muslim minority an autonomous southern homeland.
However he was unable to muster enough support in the lower house of Congress to even secure a vote by Wednesday, the final day of parliament before it adjourns ahead of national elections in May.
Failure to pass the bill means it can not be passed under Aquino, who is limited by the constitution to a single term, with no certainty over whether his successor will even pursue a peace deal.
The nation's largest Muslim rebel group, the 10,000-strong Moro Islamic Liberation Front (MILF), signed a peace accord with Aquino's government in 2014 to end its struggle for independence, which began in the 1970s.
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Under the accord, the rebels would have only given up their arms after the law was passed creating the autonomous homeland and a regional government was elected. The vote was meant to take place alongside the May general election.
Chief MILF negotiator Mohagher Iqbal said today the rebel leadership was working hard to avoid a repeat, and vowed to continue working for peace with Aquino's successor.
He told ABS-CBN television there could be a feeling of "repression" within the MILF ranks, but the leadership was countering with "massive engagement".
"We just explain to them that here lies the problem in the peace process. We will never cease engaging in the peace process," he told ABS-CBN television.
However the raid led to a day of intense fighting with the MILF and other rebels that left 44 police commandos dead.