The Nationals have rejected renegade MP George Christensen's motion to ban the burqa - but only by a few votes.
Mr Christensen says he will continue to push for the Turnbull government to adopt the policy of banning the face covering from government buildings and public spaces despite his own party's decision.
The urgent motion came to a vote at the Nationals federal conference on Sunday and was defeated 55 to 51.
Mr Christensen said the ban was needed for security reasons but also noted the party was "bleeding to the right" on such issues. The motion comes just weeks after One Nation leader Pauline Hanson caused a firestorm by wearing a burqa to Senate question time as part of her bid to ban it.
"Sadly my push to ban facial coverings in public places where it assists with security and safety just fell short of being passed as policy of the Nationals," Mr Christen said shortly after the vote.
"The federal conference of The Nationals voted 55-51 against the measure with several delegates in favour not being able to be present for the vote. As my local electorate and the LNP's Dawson branch strongly support a ban on facial coverings, I will continue to push for this to be government policy."
Nationals leader Barnaby Joyce voted against the motion, despite disliking the burqa, citing Australia's trade with countries such as Indonesia, Saudi Arabia and Jordan.
"In the agriculture sector, we do a lot of business with Islamic countries. I get along with them, they get along with me, and I just want to make sure that relationship continues on," he said before the vote.
"Have a discussion about security, have a discussion about issues, but just make sure you don't wander off into the realm of discussing another person's religion. What people believe and how they talk to their God is their business."
Liberal cabinet minister Josh Frydenberg welcomed the Nationals decision, saying the government would not adopt a ban.
"We need to be tolerant of all faiths. That being said, for me it is a confronting piece of clothing," he told Sky News.
Mr Joyce's deputy, Fiona Nash, also voted against Mr Christensen's motion. However, sidelined cabinet minister Matt Canavan and junior minister David Gillespie both supported the motion.
The Nationals on Saturday voted to remove all subsidies for renewable energy providers over a five-year period and to freeze them at their current level for the next year.