The Government accepts a European ruling that the blanket ban on prisoners voting was wrong and that it "imposes an international legal obligation on us", the Attorney General has said.
Successive governments, including the coalition, have always put great emphasis on observing these obligations and to ignore this would damage the UK's international reputation, Dominic Grieve said.
But he insisted the UK has "a great deal of latitude" in how it complies with the judgment.
His comments came after Tory MPs reacted with fury over claims that the coalition was poised to introduce legislation to give prisoners the vote.
According to the Guardian, ministers are preparing to launch a draft Bill to comply with the so-called Scopola ruling by the European Court of Human Rights (ECHR).
But a Government source told the newspaper that a final decision was unlikely to be taken until late November - after the elections for police and crime commissioners.
The move would set the stage for another major showdown between Prime Minister David Cameron and Eurosceptic backbenchers.
Mr Grieve told MPs: "This is not a matter where there's not parliamentary sovereignty. There clearly is. Parliament gives and Parliament can take away. Governments can leave the Council of Europe if they choose to do so, but all I'm saying is it is quite clear, and I think accepted by the Government, it is accepted, that in so far as the Scopola judgment is concerned, it imposes an international legal obligation on us."
Refusing to speculate on the consequences of the UK ignoring the judgment, Mr Grieve said: "The issue, it seems to me, is whether the United Kingdom wishes to be in breach of its international obligations and what that does reputationally for the United Kingdom."
But he added: "Exactly what the United Kingdom should do is not specified and indeed it's quite clear there is going to be, or is, a great deal of latitude in what the United Kingdom can do."