The House of Representatives has come out against a proposal to ban the export of weapons and other military materiel.
A clear majority voted against the people's initiative by the pacifist group, Switzerland Without an Army. The issue still has to be discussed by the Senate, before it comes to a nationwide vote at a later date.
Opponents argued the ban would lead to 10,000 job cuts in the country and threatened the purchase of arms for the Swiss army.
Economics Minister Doris Leuthard said the initiative was an attack on national security. She added that strict rules helped prevent exports to countries which violate international law.
Supporters, mainly among the centre-left, said the sale of weapons was in breach of humanitarian principles.
Last year Switzerland exported military materiel worth SFr772 million ($668 million) to more than 70 countries around the world, including Pakistan, Saudi Arabia, Romania and Turkey.