The Hindu nationalist BJP, the major partner in the federal coalition, lost Rajasthan and Delhi to Congress, which also held on to Madya Pradesh.

Opposition parties, including the communists, said the BJP had lost the moral authority to govern in a humiliating defeat.

Sonia Gandhi: "We must not rush into certain situations"

But Sonia Gandhi, president of Congress, said it was too early to try to topple the BJP-led coalition.

"This is too early to come to any such decision," she said. "We will see as things develop.

"The message is quite clear. We certainly have gained a lot of strength. We have to get down to work now."

BBC's Mike Wooldridge: Splits in governing coalition may worsen

The party is thought to be under pressure from other opposition groups to use discontent within the federal coalition to try and form an alternative government.

BJP leaders remained defiant despite acknowledging the results were disappointing.

Opening the World Economic Forum meeting in Delhi, Prime Minister Atal Behari Vajpayee said foreign investors should not be swayed by the results.

He urged them to focus on the long-term potential of the Indian economy, adding that his government's policies aimed at growth of nearly 8% per annum.

No confidence move

Congress spokesman Ajit Jogi, however, said the party was in talks with its allies over a possible parliamentary motion of no-confidence in Prime Minister Vajpayee.

Prime Minister Vajpayee's position is now under threat

"We are formulating strategy. We do not want to go in for it ourselves," he said, adding that Congress would stake a claim to power if the coalition fell.

Three opposition parties have also urged Mr Vajpayee to resign.

The elections were widely seen as a popularity test for the BJP-led coalition government and serious losses could provoke in-fighting in the already shaky 19-party coalition.

BJP spokesman Krishan Lal Sharma described the defeat as a definite "setback".

Other party colleagues blamed both in-fighting within nationalist ranks and inflation.