The Marshall Islands ruling United Democratic Party has failed to get a parliamentary majority to move forward with plans to revamp the country's constitution.
The government says it will now put the proposal for a constitutional convention to the people in a national referendum.
It wants to make dramatic changes to the current Westminster-style government that has been in place in the Marshall Islands for 27 years.
This includes direct election of the country's president, who is now elected by parliament, and clear separation of the executive branch of government from the legislature.
Other amendments include tightening up or eliminating altogether provisions that allow foreigners to become citizens.
The move is largely a response to increasing control of the business sector by Chinese nationals who either purchased passports in the 1990s, when the government was selling citizenships, or who now qualify for citizenship by virtue of marriage.
A government officials says no dates have yet been set for the referendum.
