British Prime Minister Gordon Brown admitted on Friday that his Labour party had suffered a "bad" blow in local elections which produced its worst results since the 1960s, dubbed a "bloodbath" by the press.
Labour -- with Brown leading them into elections for the first time since taking office last year -- was set to finish third behind opposition Conservatives and Liberal Democrats, according to near-complete results.
The ruling party could face further humiliation in the closely-fought London mayoral race, which pitched the current mayor, Labour's Ken Livingstone, against the Conservatives' maverick Boris Johnson.
"It's clear to me that this has been a disappointing night, indeed a bad night for Labour," Brown told reporters, linking Labour's performance to the effects of the global credit crunch.
"We have lessons to learn from that and then we will move forward."
Conservative leader David Cameron said the results were "a very big moment" for his party. Some commentators suggest the Tories' strong showing could be a springboard to victory in a general election which must be held by mid-2010.
The London Evening Standard splashed the news under the headline "Bloodbath for Brown," while the Daily Mail called it "Black Friday."
Amid speculation Livingstone would lose in the backlash, Brown seemed to sound a valedictory note when he said he spoke to the mayor last night and thanked him "for the campaign he has run and the message he has put across."
As the vote count continued, the BBC reported Johnson was ahead in nine out of London's 14 electoral areas. Betting firm Paddy Power said it was paying out on a Johnson win even before the result was known.
Officials say turnout in the tight London race was 45 per cent and that 20 per cent more people voted this time than four years ago. Full results are expected after 1930 GMT.
In the wider local polls in England and Wales, the Conservatives had 44 per cent of the vote, the Liberal Democrats 25 per cent and Labour 24 per cent, the BBC said in projections.
This would be Labour's worst performance in local polls since the late 1960s.
With results from 147 out of 159 local councils counted, the Conservatives had won 61 local councils, Labour 15 and the Liberal Democrats 11. The remainder were not controlled by any single party.
Labour lost nine councils and 291 councillors and the Conservatives gained 12 councils and 233 councillors.
Senior government figures insisted Brown -- who succeeded Tony Blair in Downing Street last June -- was still the best man for the job.
Harriet Harman, Labour's deputy leader, told BBC television: "We all think these are disappointing results and we recognise the economic context with people feeling the pinch ...
"But we are determined to listen and confident to take the country forward."
Brown has been shaken in recent months by poor opinion polls and lawmakers' dissent over tax reforms and plans to extend the period of pre-trial detention for terrorist suspects to 42 days.
It seems unlikely that he will now face a quick leadership challenge, but most commentators expect him to try and relaunch his government with a new policy programme.
The results give a major boost to the Conservatives' hopes of winning the next general election.
They have not won since John Major's victory in 1992 and been plagued by major internal splits, notably over the European Union, but have recently gained momentum, particularly over state of the economy, as Brown and Labour have flailed in recent months.
"The possibility at least that the Conservatives might win the general election is no longer inconceivable," Professor John Curtice, professor of government at Strathclyde University, told BBC radio.
In all, some 13,000 candidates fought for more than 4,000 seats on 159 municipal councils in England and Wales as well as the 25-member London Assembly and mayoral vote.