Only 64 out of 468 representatives supported the Libyan leader's plan, while 251 others voted "yes in principle" but demanded additional time to implement the program.
The plan, proposed by Gaddafi last year, will be postponed at this stage by several months. The residents were slated to receive some $32 billion altogether.
The Libyan leader said in the past that the plan was needed to avoid the corruption phenomena in the Libyan governmental bodies in charge of distributing the revenues.
The plan was slated to begin this year and focus on the one million poorest residents of the North African country, whose population includes some five million people.
Each resident was slated to receive 30,000 dinar (close to $23,000). Half a million of Lybia's wealthy residents were slated to receive a more modest sum this year of about 1,300 dinars (a little less than $1,000).
The plan's surprising rejection constitutes quite a blow to the veteran leader's prestige, as he has declared more than once that one of the main objectives of his plan is to bridge the gap between the rich and poor in the Libyan society.
But even before the rejection, many in Libya believed that Gaddafi's plan would not be implemented. Sources in the country said that the corruption in the government was so widespread that even if the plan had been adopted, senior government workers would have found a way to get the money straight into their pockets.
Doron Peskin is head of research at Info-Prod Research (Middle East) Ltd.