The House voted down a $700 billion plan aimed at bailing out Wall Street.
The rescue plan, a result of tense talks between the government and lawmakers, was rejected by 228 “nea” to 205 “yea” votes. About two-thirds of Republican lawmakers refused to back the rescue package, as well as 95 Democrats.
Shares on Wall Street plunged within seconds of the announcement, after earlier falls on global markets.
President George W. Bush was "very disappointed" by the result. He would meet members of his team in the coming days to "determine next steps", spokesman Tony Fratto said.
The BBC's Adam Brookes, in Washington, said Democratic leaders in the House were likely to try and convince a number of their members who voted against the bill to change their minds in coming days.
Speaking after the vote, Republican leaders suggested the Democrats were to blame, accusing them of failing to mobilize their majority in the chamber.
