Crossbencher Baroness Meacher, seen as the most likely leader of the revolt, said today that there was wide-ranging concern over the impact the tax credits changes would have on large numbers of families earning low wages.
The Huffington Post understands a formal motion will be tabled later this week.
Unlike the House of Commons, where David Cameron has a majority of 12 following the general election, the House of Lords has an in-built anti-Tory majority where Labour and Liberal Democrats can outnumber the Conservatives.
Fatal motions are used very rarely as unelected peers are wary of overstepping their powers to delay an elected government’s legislation.
Campaigners believe that the usual Salisbury convention, which stops the Lords from blocking a party’s plans, does not apply because the tax credits cuts were not mentioned in the Tory manifesto in May.
But a fatal motion on a financial matter would be unprecedented and Tory sources are determined that the Lords would have to pay a serious political price if the Government is defeated next week.
“If they do this, they will turn this from being a matter about tax credits into a huge constitutional issue of the Lord's’ powers,” one insider said.
One option is to simply suspend the Lord's’ entire business, and process bills purely through the Commons, while another is to draft a list of new Tory peers to allow the party to get its business through the upper chamber.