if you can make something beneficial to enough of the individuals, they may vote to “reduce the government’s power”, because it is still increasing their own power or status.

True, but I suspect most MPs might not see this change as a net benefit:

1) Any major shakeup of the electoral system increases the chances of outsiders. So, the chances of 400 MPs who lose their seats to be elected to state assemblies would probably be lower than their chances to be reelected to parliament under the old system.
2) The change would be viewed as a loss by the PM, cabinet ministers and those who have a realistic expectation to get these positions in the future (i.e. politicians who are far more influential than an average MP).
3) Most MPs might not like having to move their families from the capital to less glamorous places.